money supply, banking & financial institutions section 1 Practice Questions Answers Test with Solutions & More Shortcuts

Question : 46 [MPPCS 2015]

NABARD is related with

a) National Rural Development Institution

b) National Financial Institution

c) National Bank for Agriculture and Rural Development

d) National Agriculture Development Institution

Answer: (c)

Question : 47 [UPSC (Pre) 2001]

Which of the following committee examined and suggested financial sector reforms?

a) Bhagwati Committee

b) Narsimhan Committee

c) Chelliah Committee

d) Abid Hussain Committee

Answer: (b)

Question : 48

Which of the following will deter investments in the economy?

  1. High real interest rate
  2. High capacity utilization
Select the correct answer using the code given below:

a) (ii) only

b) Both (i) & (ii)

c) (i) only

d) Neither (i) nor (ii)

Answer: (c)

Investments depend essentially on the real interest rates. It is the difference in the lending rate and inflation. For businessmen, it is this cost i.e. the real interest rate which matters. If it is high, businessmen will not borrow and invest.

For example, if inflation is 6% and the lending rate is 10%, then the real interest rate for businessmen is 4%. For businessmen, it is the real interest rate of 4% that matters. If the real interest is high then it deters investment.

If in the economy, capacity utilization is high that means factories are running at full utilization and then the businessmen plan for an increase in capacity so that in future they are able to supply the goods and services in case there is an increase in demand.

But, if the existing capacity is not fully utilized, then businessmen defer new investments.

Question : 49 [SSC CAPFs 2014]

Which term is not related to banking ?

a) S.L.R.

b) Fixed Deposits

c) C.R.R.

d) N.E.E.R.

Answer: (d)

NEER stands for Nominal Effective Exchange Rate which represents the relative value of a home country’s currency compared to the other major currencies being traded (U.S. dollar, Japanese yen, euro, etc.). It also represents the approximate relative price a consumer will pay for an imported good.

Question : 50 [SSC CML 2006]

If the Central Bank wants to encourage an increase in the supply of money and decrease in the cost of borrowing money, it should

a) sell government securities

b) All of the above

c) lower cash reserve ratio

d) raise discount rates

Answer: (c)

When the Central Bank of a country intends to increase the money supply, it should lower the Cash Reserve Ratio. A decrease in CRR helps the commercial banks to hold a lesser proportion of their deposits in the form of deposits with the RBI.

This increases the number of Bank deposits and they will lend more as they have more amount as their reserve

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