money supply, banking & financial institutions section 10 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) Debt services
(b) Grant–in–aid
(c) Irrigation expenditure
(d) Civil administration
The correct answers to the above question in:
Answer: (c)
Public expenditure whether plans or non-plan or capital or revenue is classified into developmental and non-developmental expenditure. The expenditure which is incurred on activities directly related to economic development is called developmental expenditure.
Hence, expenditure incurred on education, health care, scientific research; infrastructure and so on is developmental expenditure. Expenditure incurred on general essential services required for the normal running of the government is termed as a non-developmental expenditure.
Therefore, expenditure incurred on services relating to general administration, police, defence, judiciary etc. is non-developmental expenditure.
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Read more money and supply banking financial institutions Based Indian Economy Questions and Answers
Question : 1
Consider the following statements regarding ‘money supply’:
- It can be increased by increasing the money multiplier
- It can be increased by increasing the monetary base
a) (ii) only
b) Both (i) & (ii)
c) (i) only
d) Neither (i) nor (ii)
Answer »Answer: (b)
Money supply = (Money Multiplier) X (Monetary Base)
From the above formula, the money supply can be increased by increasing the money multiplier or monetary base or both.
Question : 2
Foreign Direct Investment in India under "Government Route" is approved by which of the following agency/body:
a) Department for Promotion of Industry and Internal Trade (DPIIT)
b) Reserve Bank of India (RBI)
c) Department of Economic Affairs
d) Respective administrative Ministry/ Department
Answer »Answer: (d)
Foreign Direct Investment can come through two routes viz. automatic and government approval routes. More than 95% of the FDI comes in India through the “Automatic Route” where no government approval is required and are subject to only sectoral laws. Certain sectors that are still under the “Government approval route” are scrutinised and cleared by the respective departments and ministries.
In respect of applications in which there is a doubt about the Administrative Ministry/Department concerned, DPIIT shall identify the Administrative Ministry/Department where the application will be processed.
In respect of proposals where the respective department/ ministry proposes to reject the proposals or in cases where conditions for approval are stipulated in addition to the conditions laid down in the FDI policy or sectoral laws/regulations, the concurrence of DPIIT shall compulsorily be sought by the said Ministry.
The Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry sets the rules for foreign investment and makes policy pronouncements on FDI through various Press Releases.
Question : 3
Consider the following statements.
- Bank rate is the rate of interest which RBI charges its clients on their short-term borrowing.
- Repo rate is the rate of interest which RBI charges its clients on their long-term borrowing.
a) Only 2
b) Neither 1 nor 2
c) Both 1 and 2
d) Only 1
Answer »Answer: (b)
Question : 4
Consider the following statements regarding Cash Reserve Ratio (CRR) kept with RBI by commercial banks:
- It ensures safety to the people’s deposits in banks
- It ensures the solvency of banks
- It increases the cost of funds for the banks
- Banks earn interest on CRR
a) (i) & (ii) only
b) (i), (ii) & (iii) only
c) (i) only
d) All of the above
Answer »Answer: (b)
One of the basic reasons for keeping CRR with RBI is to provide safety to the public deposits. It also ensures the solvency of banks i.e. staying in business and proper functioning and liquidity situation.
Since banks do not earn interest on the CRR, so it is idle money for the banks which increases costs for banks.
Question : 5
Who is the ‘lender of the last resort’ in the banking structure of India?
a) Reserve Bank of India
b) Union Bank of India
c) Exim Bank of India
d) State Bank of India
Answer »Answer: (a)
Question : 6
Deflation is a situation in which
a) The value of money is increasing.
b) The price level is stagnant.
c) The value of money is falling.
d) The price of goods is increasing.
Answer »Answer: (a)
Deflation is a situation where the prices of goods and commodities in a country go down. i.e., there is negative inflation. This is caused due to reduced supply of money/credit.
Inflation reduces the real value of money over time; conversely, deflation increases the real value of money – the currency of a national or regional economy.
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