money supply, banking & financial institutions section 6 MCQ Questions & Answers Detailed Explanation
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The following question based on Money Supply, Banking and Financial Institutions topic of indian economy mcq
(a) Central Board of RBI
(b) Central Government
(c) Governor of RBI
(d) Governor of RBI in consultation with Central Government
The correct answers to the above question in:
Answer: (b)
As per the RBI Act 1934, Section 25, "the design, form and material of bank notes shall be such as may be approved by the Central Government after consideration of the recommendations made by the Central Board of RBI.”
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Read more money and supply banking financial institutions Based Indian Economy Questions and Answers
Question : 1
To reduce the rate of inflation, the Government should:
a) Encourage consumer expenditure
b) Increase Income tax
c) Increase public expenditure
d) Reduce Interest Rate
Answer »Answer: (b)
To reduce the rate of inflation government should reduce the money supply which it can do through increase in income tax.
So, (c) option is true.
All the other options increases money supply.
Question : 2
How is the price level measured?
- Wholesale Price Index
- Consumer Price Index
- Gross Domestic Product (GDP) Deflator
- Business Price Index
a) 1, 2, 3
b) 1, 2, 3, 4
c) 1, 2
d) 1
Answer »Answer: (a)
Price level is measured by Wholesale Price Index, Consumer Price Index, Gross Domestic Product (GDP) Deflator.
Question : 3
The share broker who sells shares in the apprehension of falling prices of shares is called
a) Bear
b) Stag
c) Bull
d) Dog
Answer »Answer: (a)
A bear market is a market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining.
As investors anticipate losses in a bear market and selling continues, pessimism only grows.
Bear investors believe that the value of a specific security or an industry is likely to decline in the future. Bears attempt to profit from a decline in prices. Bears are generally pessimistic about the state of a given market.
Question : 4
Provident Fund in India is
a) Residual Savings
b) Employer’s Savings
c) Voluntary Savings
d) Contractual Savings
Answer »Answer: (d)
Question : 5
The Real Rate of Interest is equal to the Nominal Interest Rate minus inflation. Consider the following statements:
- Real Interest Rate must be positive to encourage savings and reduce consumption
- Real Interest Rate must be negative to encourage savings and reduce consumption
- Real interest rate is always positive
- Inflation rate in the market may be negative
a) (iii) only
b) (i) & (iii) only
c) (i) only
d) (i) & (iv) only
Answer »Answer: (d)
Nominal Interest Rate (Deposit Rate) = Inflation + Real Interest Rate
If inflation is 5% and banks offer a deposit rate of 5% then nobody will deposit money in banks as whatever banks are offering will be eaten away by inflation. People deposit money in banks to earn something and this is possible only when the real interest rate is positive.
So, if inflation is 5% and banks are offering a deposit rate of 7% then the real interest rate will be 2%.
This means the depositors are actually/really getting a 2% return.
When the real interest rate is positive then it leads to people saving (depositing) money in banks, and somewhat reduction in their consumption.
When inflation increases a lot and banks do not increase their deposit rate then the real interest rate may turn negative. Inflation in the economy may be negative.
So, (i) & (iv) statements are true.
Question : 6
Which of the following terms indicates a mechanism used by commercial banks for providing credit to the government?
a) Debt Service Obligation
b) Statutory Liquidity Ratio
c) Liquidity Adjustment Facility
d) Cash Credit Ratio
Answer »Answer: (b)
GET Money Supply, Banking and Financial Institutions PRACTICE TEST EXERCISES
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money supply, banking & financial institutions section 12
Money Supply, Banking and Financial Institutions Shortcuts and Techniques with Examples
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