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

Answer: (d)

Answer: (a)

Answer: (c)

Answer: (a)

Statutory/Legal Reserve Requirements means all the reserve requirements mandated for the banks and it includes both CRR and SLR.

The purpose of CRR/SLR is not to prevent banks from making excessive profit but rather to make people’s deposits safe and liquid and allow RBI to manage liquidity in the economy.

Through CRR or SLR, RBI does not specify any amount of vault cash that the banks need to keep with them.

Through SLR, RBI specifies liquid assets in any form like cash, gold or govt. bonds and not any specific amount of vault cash.

Answer: (b)

Stagflation describes a situation where an inflation rate is high, the economic growth rate slows down, and unemployment remains steadily high.

It raises a dilemma for economic policy since actions designed to lower inflation may exacerbate unemployment and vice versa.

Answer: (d)

Inflation occurs when too much money is chasing too few goods. The prevailing view in mainstream economics is that inflation is caused by the interaction of the supply of money with output and interest rates.

In general, mainstream economists divide into two camps:

1. those who believe that monetary effects dominate all others in setting the rate of inflation, or broadly speaking, monetarists, and
2. those who believe that the interaction of money, interest and output dominate over other effects, or broadly speaking Keynesians.

Other theories, such as those of the Austrian school of economics, believe that inflation of the general price level and of specific prices is a result of an increase in the supply of money by central banking authorities.