money supply, banking & financial institutions section 6 MCQ Questions & Answers Detailed Explanation

Answer: (b)

Commercial banks create credit on the basis of their deposits. Credit creation is the multiple expansions of banks that demand deposits.

Whenever, customer deposits a sum of money, a part of that money is kept by the commercial banks with the credit bank of the country which is obligatory by the law.

The amount of credit that can be created by the bank will depend on the primary deposits and also on the amounts of minimum legal resource requirement.

Answer: (c)

Answer: (c)

‘Cheap Money’ is a loan or credit with a low interest rate or the setting of low-interest rates by a central bank like the Federal Reserve.

Cheap money is good for borrowers, but bad for investors, who will see the same low-interest rates on investments like savings accounts, money market funds, CDs and bonds.

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.

Answer: (a)

Price level is measured by Wholesale Price Index, Consumer Price Index, Gross Domestic Product (GDP) Deflator.

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.