money supply, banking & financial institutions section 8 MCQ Questions & Answers Detailed Explanation

Answer: (d)

Answer: (a)

Gresham’s law is an observation in economics that “bad money drives out good.”

More exactly, if coins containing metal of different value have the same value as legal tender, the coins composed of the cheaper metal will be used for payment, while those made of more expensive metal will be hoarded or exported and thus tend to disappear from circulation.

Sir Thomas Gresham, financial agent of Queen Elizabeth I, was not the first to recognize this monetary principle, but his elucidation of it in 1558 prompted the economist H.D. Macleod to suggest the term Gresham’s law in the 19th century.

Answer: (d)

Islamic banking is a banking system that is based on the principles of Islamic law, also referred to as Shariah law and guided by Islamic economics. Two basic principles behind Islamic banking are the sharing of profit and loss and the prohibition of the collection and payment of interest by lenders and investors.

In order to earn money without charging interest, Islamic banks use equity-participation systems. This means that if a bank loans money to a business, the business pays back the loan without interest, but it gives the bank a share in its profits. If the business defaults on the loan or does not earn any profits, the bank does not receive any profit either.

The depositors put their savings in an Islamic bank and allow the bank to use this money, with the assurance that they would get the full amount back. The bank is not liable to pay interest to the savers. However, some banks do give a certain sum back to the account holder as profit accrued from their operations.

While an Islamic bank is a bank totally based on and runs with Islamic principles in mind, an "Islamic window" in a bank refers to conventional banks offering Islamic banking services (in addition to conventional banking services) through dedicated windows.

The RBI has proposed the opening of an "Islamic window" in conventional banks for the gradual introduction of Sharia-compliant banking in the country to ensure the financial inclusion of those sections of society that remain excluded due to religious reasons.

Answer: (a)

In economics, the Laffer curve is a hypothetical representation of the relationship between government revenue raised by taxation and all possible rates of taxation.

It is used to illustrate the concept of taxable income elasticity – which taxable income will change in response to changes in the rate of taxation.

Answer: (c)

Answer: (c)

Cash Reserve Ratio is a regulation set by the Central bank (RBI in India) which dictates the minimum amount (reserves) that a commercial bank must be held to customer notes and deposits.

A decrease in CRR will make it mandatory for the banks to hold a lesser proportion of their deposits in the form of deposits with the RBI. This will increase the number of Bank deposits and they will lend more as they have more amount as their reserve.