money supply, banking & financial institutions section 10 Practice Questions Answers Test with Solutions & More Shortcuts

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

Answer: (c)

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

1. savings bank deposits,
2. fixed deposits,
3. mutual funds,
4. insurance policies,
5. do not get a consolidated view of their financial asset holdings,
6. 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.

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.

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.