money supply, banking & financial institutions section 10 MCQ Questions & Answers Detailed Explanation
MOST IMPORTANT indian economy mcq - 12 EXERCISES
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The following question based on Money Supply, Banking and Financial Institutions topic of indian economy mcq
(a) increase in production
(b) decrease in production
(c) increase in money supply and decrease in production
(d) increase in money supply
The correct answers to the above question in:
Answer: (c)
Economists generally agree that in the long run, inflation is caused by increases in the money supply.
According to the theory of Demand-Pull Inflation, if demand grows faster than supply, prices will increase. There is too much money chasing too few goods. The increase in money supply is not matched by the equivalent production of goods.
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Question : 1
'Stagflation' occurs in which of the following situation:
- Demand-pull inflation
- Cost-push inflation
a) (ii) only
b) Both (i) & (ii)
c) (i) only
d) Neither (i) nor (ii)
Answer »Answer: (a)
Stagflation is an economic anomaly where stagnation in the economy is accompanied by high inflation (instead of low inflation due to falling demand).
Triggered first in 1973 by the OPEC's fourfold increase in oil prices which raised all prices, thus slowing down economic growth.
Stagflation = Stagnation in the economy + Inflation
Generally, when the economy stagnates (slows down) then inflation also comes down due to lower demand in the economy. But stagflation is an exception where the economy slows down but the inflation is high and this may be because of the steep rise in prices of some inputs required in the production process.
Question : 2
Consider the following statements regarding ‘ways and means’ advance:
- It is available for both Central and State governments
- Government need to pay interest on ways and means advance
- It is to meet the temporary mismatches of receipts and payments
a) (i) & (iii) only
b) (ii) & (iii) only
c) (i) only
d) All of the above
Answer »Answer: (d)
The Reserve Bank of India gives temporary loan facilities to the centre and state governments as a banker to the government. This temporary loan facility is called Ways and Means Advances (WMA).
The WMA scheme was designed to meet temporary mismatches in the receipts and payments of the government. This facility can be availed by the government if it needs immediate cash from the RBI.
The WMA is a loan facility from the RBI for 90 days which implies that the government has to vacate the facility after 90 days.
The interest rate for WMA is currently charged at the repo rate. The limits for WMA are mutually decided by the RBI and the Government of India.
Question : 3
In the context of Indian economy, ‘Open Market Operations’ refers to
a) lending by commercial banks to industry and trade
b) None of the above
c) purchases and sale of government securities by the RBI
d) borrowing by scheduled banks from the RBI
Answer »Answer: (c)
Question : 4
Consider the following statements regarding "Account Aggregators":
- These are a new class of NonBanking Financial Companies
- They will provide lending to small customers
- They will provide information to the customers of their financial assets invested in different instruments
a) (i) & (ii) only
b) (i) & (iii) only
c) (i) only
d) (iv) only
Answer »Answer: (b)
RBI, in Nov 2017, notified the rules and regulations for a new class of Non-Banking Financial Companies (NBFCs) called Account Aggregators.
Earlier, persons holding financial assets, such as
- savings bank deposits,
- fixed deposits,
- mutual funds,
- insurance policies,
- do not get a consolidated view of their financial asset holdings,
- especially when the entities fall under the purview of different financial sector regulators like RBI, SEBI, IRDAI etc.
Account Aggregators will fill this gap by collecting and providing the information of customers’ financial assets (invested in different instruments and regulated by different bodies) in a consolidated, organized and retrievable manner to the customer or any other person as per the instructions of the customer.
The investors will be able to avail of the service of an Account Aggregator purely at their option.
The RBI will regulate and supervise the activity of account aggregation with a view to ensure that the services provided and the terms at which these are provided conform to prescribed standards.
Question : 5
Consider the following statements:
- There is almost no speculation in the G-sec market
- The Investors in the G-Sec Market are predominantly the institutions
a) Only 2 is correct
b) Only 1 is correct
c) Both 1 & 2 are correct
d) Neither 1 nor 2 is correct
Answer »Answer: (c)
Question : 6
Variation in Cash Reserve Ratio and Open Market Operations are instruments of
a) Fiscal policy
b) Monetary policy
c) Budgetary policy
d) Trade policy
Answer »Answer: (b)
Bank Rate Policy, open market operations and variation of Cash Reserve Ratios, etc. are instruments of monetary policy. With the help of these instruments, the Reserve Bank of India controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability
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