money supply, banking & financial institutions section 12 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

Questions : Which one of the following is an example of optional money?

(a) Cheque

(b) Bond

(c) Currency note

(d) Coins

The correct answers to the above question in:

Answer: (a)

On the basis of acceptability, money has been classified into legal tender and optional money.

Legal tender money is enforced by law. Optional money is that money that may or may not be accepted as a means of payment; it has no legal sanction.

Different credit instruments, like, cheques, bank drafts, etc., are examples of optional money.

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Read more money and supply banking financial institutions Based Indian Economy Questions and Answers

Question : 1

An increase in the Bank Rate generally indicates that the :

a) market rate of interest is likely to fall

b) Central Bank is following an easy money policy

c) Central Bank is no longer making loans to commercial banks

d) Central Bank is following a tight money policy

Answer: (d)

A tight monetary policy is a course of action undertaken by the Central bank to constrict spending in an economy, or to curb inflation when it is rising too fast.

The increased bank rate increases the cost of borrowing and effectively reduces its attractiveness.

Question : 2

Consider the following:

  1. Commercial Banks
  2. Central Bank of India
  3. Government
Which among the above can create money?

a) Only 1 & 2

b) Only 1

c) Only 3

d) All 1 2 & 3

Answer: (d)

Question : 3

Which of the following factors may lead to an increase in savings in the economy?

  1. Positive real interest rate
  2. Low inflation rate
  3. Rise in per capita income
  4. Growth of financial intermediaries
Select the correct answer using the code given below:

a) (iii) & (iv) only

b) (ii) & (iii) only

c) (iii) only

d) All of the above

Answer: (d)

When inflation in the economy is low, people expenses decrease and they are able to save more.

When per capital income increases it leads to higher savings in the economy.

The growth of financial intermediaries means financial institutions like banks. An increase in banks in the economy leads to increased saving behaviour.

So, all the statements are true.

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