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
(a) Gold and silver
(b) Dollars and other hard currencies
(c) Goods and services
(d) Exportable surplus
The correct answers to the above question in:
Answer: (b)
In international transactions, generally dollars and some other stable/hard currencies like Euro, Pound, Yen etc. are used/accepted. So, if there is a problem of international liquidity then it means non-availability of these hard currencies.
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Read more money and supply banking financial institutions Based Indian Economy Questions and Answers
Question : 1
Who are the creditors of a Corporation ?
a) Both Bond and Stock holders
b) Holders of preferred stock
c) Bond holders
d) Stock holders
Answer »Answer: (a)
A creditor is a party (e.g. person, organization, company, or government) that has a claim to the services of a second party. It is a person or institution to whom money is owed. The second party is frequently called a debtor or borrower.
An incorporated entity is a separate legal entity that has been incorporated through a legislative or registration process established through legislation. Both bondholders and stockholders are creditors of a corporation.
Question : 2
Certificate of Deposit (CD) and Commercial Paper were introduced by a Bank in March 1989:
- Reserve Bank of India
- State Bank of India
- HDFC Bank
- ICICI Bank
a) 2 only
b) 1 only
c) 3 only
d) 4 only
Answer »Answer: (b)
Certificate of Deposit (CD) and Commercial Paper (CP) markets were introduced by Reserve Bank of India in March 1989 in order to widen the range of money market instruments and give investors greater flexibility in the deployment of their shortterm surplus funds.
Question : 3
Consider the following statements in an economy:
- Value of transactions is generally higher than the value of output (GDP)
- Money required for transaction in the economy is equal to the value of transactions
a) (ii) only
b) Both (i) & (ii)
c) (i) only
d) Neither (i) nor (ii)
Answer »Answer: (c)
GDP (Output) is the final value of goods and services produced in the economy. But there are a lot of transactions that happen in the economy for intermediate goods, so the value of transactions is higher than the value of final output in the economy.
For example, suppose, I purchased Rs. 30 of input to produce Rs. 100 of the final output, which I sold in the market. GDP will be Rs. 100, while the value of transactions in the economy will be Rs. 130.
Since money keeps on moving between different hands, the same money is used for transacting again and again (also referred to as the velocity of circulation), so the money required for doing transactions will be less than the total value of transactions in the economy.
As of 13th March 2020, Money Supply in the economy was Rs. 165 lakh crores. While GDP of 2019-20 is expected to be Rs. 204.4 lakh crore. And the value of transactions is much more than the GDP.
Question : 4
The rise in prices of goods and services in an economy may be caused due to:
- Increase in money supply
- Increase in government expenditure
- RBI purchasing government securities from the public
- Increase in wages
a) (i), (ii) & (iii) only
b) (i), (ii), & (iv) only
c) (i) & (ii) only
d) All of the above
Answer »Answer: (d)
One of the reasons of rising in the prices of goods and services is due to increase in the money supply. An increase in money supply can be caused to the government increasing the expenditure or the government increasing the salaries. When RBI purchases government security from the public it pays money to the public and ultimately increases the money supply.
So, all the statements are true.
Question : 5
Number of times a unit of money changes hands in the course of a year is called
a) Purchasing power of money
b) Value of money
c) Velocity of money
d) Supply of money
Answer »Answer: (c)
Question : 6
Which among the following is the only correct statement?
a) Money market meets long term financing needs
b) Ways and means advances given by RBI are nowhere related to State’s revenue
c) Recession in industrial sector in India is normally due to fall in exports
d) Exchange rate is fixed by RBI
Answer »Answer: (b)
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