money supply, banking & financial institutions section 7 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
- Open Market Operation is a monetary policy tool
- Open Market Operations take place in the secondary market
- Sterilization is a monetary policy tool
(a) (i) & (iii) only
(b) (iii) only
(c) (i) only
(d) All of the above
The correct answers to the above question in:
Answer: (d)
Open Market Operations (OMO) is a monetary policy tool where RBI buys/sells government securities in the secondary (open) market to increase or decrease the money supply.
Due to foreign investments inflow or outflow, the money supply in the Indian economy increases/ decreases. To prevent or sterilize the economy from such external shocks, RBI buys or sells government securities to keep the money supply unchanged.
This is called sterilization or Market Stabilization Scheme (MSS) and it is not a day to day phenomenon, rather less frequently used.
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Question : 1
Consider the following statements regarding Foreign Direct Investment (FDI):
- FDI investment happens through the secondary market
- FDI investment is about equity securities
- FDI investment is about debt securities
a) (i) & (ii) only
b) (i) & (iii) only
c) (i) only
d) (ii) only
Answer »Answer: (d)
Question : 2
When there is an official change in the exchange rate of domestic currency, then it is called :
a) Revaluation
b) Deflation
c) Appreciation
d) Depreciation
Answer »Answer: (a)
Revaluation is a calculated adjustment to a country’s official exchange rate relative to a chosen baseline.
The baseline can be anything from wage rates to the price of gold to a foreign currency.
In a fixed exchange rate regime, only a decision by a country’s government (i.e. central bank) can alter the official value of the currency.
It is the opposite of devaluation.
Question : 3
What is the main cost-push factor in India?
- Problem of hoarding by traders and black marketeers
- Taxation which gives the traders an opportunity to raise the prices of goods, the proportion of which is often more than the levy of taxes
- Administered Prices
- Hike in Oil Prices
a) 1, 2, 3, 4
b) 1, 2, 3
c) 1, 2
d) None of the Above
Answer »Answer: (a)
the main cost-push factor in India are:
- Fluctuations in output and supply in both agriculture and industry sectors. Fluctuations in the output of food grains have been a major factor responsible for rising in food-grain prices as well as general prices. In the same way, the supply of manufactured goods also did not increase adequately in the last few years. Power breakdowns, strikes and lock-outs and shortage of transport facilities have been the major constraints responsible for lowering the production of manufactured goods. With ever-rising demand for manufactured goods, the producers are in a position to hike the prices of their products.
- The problem of hoarding by traders and black marketeers.
- Taxation gives the traders an opportunity to raise the prices of goods, the proportion of which is often more than the levy of taxes.
- Administered Prices.
- Hike in Oil Prices.
Question : 4
Which of the following measures would result in an increase in the money supply in the economy?
- Purchase of government securities from the public by the Central Bank
- Deposit of currency in commercial banks by the public
- Borrowing by the government from the Central Bank
- Sale of government securities to the public by the Central Bank
a) 2 and 4
b) 1 only
c) 1 and 3
d) 2, 3 and 4
Answer »Answer: (c)
Question : 5
For channelising the unaccounted money for productive purposes the Government Introduced the scheme of :
a) Provident Funds
b) Market Loans
c) Special Bearer Bonds
d) Resurgent India Bonds
Answer »Answer: (c)
The Special Bearer Bonds (Immunities And Exemptions) Act, 1981 laid down the purpose of such bonds as necessary to canalize for productive purposes black money which has become a serious threat to the national economy.
With a view to such canalization, the Central Government decided to issue at par certain bearer bonds to be known as the Special Bearer Bonds, 1991.
Question : 6
What are the causes of inflation?
- Increase in demand for goods & services
- Decrease in the supply of goods & services
- Decrease in demand for goods & services
- Increase in the supply of goods & services
a) 3 and 4
b) 1 and 2
c) 1 and 4
d) 2 and 3
Answer »Answer: (b)
Inflation occurs due to two main factors:
- Increase in demand for goods & services,
- Decrease in the supply of goods & services
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