Part A: Introductory Macroeconomics

Chapter 3 : .Money and Banking (Worksheet-6)

Q. NO QUESTION MARKS
1 1
Money which is issued by the monetary authority of India is known as …

A. Legal Reserve Ratio

B. Legal tender money

C. Legal Reserve Requirement

D. D. None of these

2 1
Process of credit creation of commercial bank comes to an end when:

(a) Initial deposits with bank becomes zero

(b) Legal Reserve ratio become zero

(c) Total money deposits becomes equal to initial deposits

(d) None of these

3 Bank rate is for 1
a) Commercial banks by the
government
b) Commercial banks by
the central bank
c) Central banks by the
central banks
d) Central Bank by the
commercial banks
4 1
Assertion ( A): central bank is also known as the currency authority

Reason ( R) : Reserve Bank of India enjoy the sole monopoly of issuing

currency

( a)Both ( A) Assertion and ( R) reason are true and (R ) reason is the correct
explanation of Assertion (A)

( b) Both Assertion (A) and Reason ( R) are True and Reason ( R) is not correct
explanation of Assertion ( A)

( C)Assertion is true but Reason ( R) is false

(d)Assertion ( R) is false and Reason ( R)

5 Open market operation is 1
a) Buying and selling of currency by the central bank
b) Buying and selling of securities by the central banks
c) Buying and selling of securities by the commercial banks
 d) Buying and selling of foreign exchange by the central bank
6 The lender of last resort is a function of 1
a) Rural Bank
b) Post office
c) Central Bank
d) Commercial bank
7 Money supply is a---------concept 1
a) Stock b) Flow
c) Both a and b d)Neither a or b
8 Who regulates money supply 1
a) Government of India
b) Reserve Bank of India
c) Commercial banks
d) Planning Commission
9 If the total deposits created by commercial banks is Rs 10000 crores and 1
LRR is 40% then amount of initial deposits will be
a) Rs 2000 crore b)Rs 3000 crore
c)Rs 4000 crore d)Rs 14000 crore
10 1
“The deposit forms a part of M1 measure of money supply and are payable on
demand by the commercial bank.”

Identify the type of deposit :

1. Demand deposit

2. Time deposit

3. Post office deposits

4. None of these
11 1
In the COVID-19 times Indian Economy have been Experiencing the
deflationary shocks many small and medium scale industries closed Many
Economists opined that without support (availability of chief credit) from
government and monetary authority it is difficult to revive

Suppose you are a member of the high powered committee constituted by the
Reserve Bank of India (RBI).

You have suggested that the Repo rate should be ( reduced /

increased) (Choose the correct alternative).

12 1
Supply of money refers to…......................(Choose the correct alternative)

a. currency held by the public

b. currency held by Reserve Bank of India (RBI)

c. currency held by the public and demand deposits with commercial banks
13 1
There exist … relation between reserve requirements and total deposit created
in the economy.
 Direct b) Inverse c) can’t say d) none of these
14 1
When commercial banks fail to meet its financial requirement from all other
sources, it approaches central at the last. This makes the central bank
as……………

a) Clearing house b) custodian of cash reserve

a) Bank of issue d) lender of last report

15 1
when value of money multiplier is 25 and value of CRR is 1%, the value of
SLR is ………….

a) 1% b) 2%

c) 3% d) 4%

16 1
Which of the following does not qualify for ‘’banker’s bank’’ function of RBI ?

a) Keeps the cash reserves of the commercial banks in its custody.

b) Managing the public debt .

c) Advancing loans to commercial banks .

d) Settling interbank claims .

17 1
The role of RBI has been changed from ……………. to........................under
New Economics Policy 1991.

a) Facilitator to Regulator b) Supervisor to facilitator

c) Regulator to facilitator d) Facilitator to supervisor

18 1
The relation between CRR,SLR and LRR is define as…………….

a) LRR is the product of CRR and SLR.

b) LRR is the ratio of CRR and SLR.

c) LRR is the difference of CRR and SLR.

d) LRR is the sum of CRR and SLR

19 1
When value of LRR increases, the value of money multiplier …………….
 a) Rises b) Falls

b) Either rise or fall c) Remains unchanged

20 1
The central bank can increase the availability of credit by :

a) Raising the repo rate b) Raising reverse repo rate

a) Buying government securities d) Selling the government securities

21 Supply of money refers to 1

(a) currency held by the public

(b) currency held by Reserve Bank of India

(c) currency held by the public and demand deposits with the
commercial banks

currency held by Reserve Bank of India and demand deposits with commercial
bank
22 1
Demand deposit include…
(a) Saving account deposits and fixed deposits
(b) Saving account deposits and current account deposits
(c) Current account deposits and fixed
deposits All types of deposits
23 Two friends Akash and Amit were discussing about the features of central 1

bank. “This features saves the commercial banks from possible breakdown”

The above mentioned statement was given by Akash, identify the feature was
he taking about…

(a) Banker’s bank

(b) Lender of the last resort

(c) Controller of credit

(d) Financial advisor
24 1
Assertion (A): Central Bank as a banker to the government, works as a
custodian of cash reserves.
Reason(R): The Central Bank acts as a clearinghouse for the transfer and
settlement of mutual claims of commercial banks.

(a) Both Assertion(A) and Reason(R) are true and Reason(R) is

the correct explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not
the correct explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is
false Assertion(A) is false but Reason(R) is true
25 1
Assertion(A): The Central Bank is also known as the bank of issue.
 Reason(R): The Central Bank enjoys the sole monopoly of issuing
currency to ensure control over volume of currency and money supply.

(a) Both Assertion(A) and Reason(R) are true and Reason(R) is

the correct explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not
the correct explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is
false Assertion(A) is false but Reason(R) is true
26 In a hypothetical economy, Mr. Neeraj has deposited ₹100 in the bank. If 1
it is assumed that there is no other currency circulation in the economy,
then the total money supply in the economy will be

a) zero

b) ₹ 100

c) not defined

d) ₹ 120
27 The amount of initial deposits is 3000cr and LRR is 25%. Calculate the 1
amount of total deposits created by commercial banks
(a) 10000 crore
(b) 11000 crore
(c) 12000 crore
(d) 13000 crore
28 Ms. Sakshi, an economics teacher, was explaining the concept of ‘minimum 1
percentage of the total deposits to be kept by any commercial bank with the
Central Bank of the country, as per norms and statute prevailing in the
country’. From the following, choose the correct alternative which specifies
towards the concept explained by her?
a) Cash Reserve Ratio
b) Repo Rate
c) Bank Rate
Statutory Liquidity
Ratio
29 What will be the effect of an increase in the ‘Repo Rate on the Money 1
Supply?
a) Money supply will increase
b) Money supply will decrease
c) Money supply will remain the same
Money supply will initially increase and then it will decrease
30 Credit Control means 1

(a) Contraction of credit only (b) Extension and contraction of

money supply

(c) extension of credit only (d) supply of money remains the same
31 Money supply in India is: 1
a) Currency with public.
b) Demand deposits with the bank.
c) Currency with public + Demand deposits with banks.
d) None of these.
32 Which of the following deposits are also known as chequeable deposits? 1
a) Savings account deposits.
b) Demand deposits.
c) Fixed account deposits.
d) Current account deposits.

33 is responsible for issuing ₹1 currency note in India. 1

a) Reserve Bank of India.
b) Ministry of commerce.
c) Ministry of finance.
d) Niti Aayog.

34 The value of deposit multiplier is equal to . 1

a) 1/CRR.
b) 1/SLR.
c) 1/LRR.
d) None of these.

35 The ratio of total deposits that a commercial bank has to keep with Reserve 1
bank of India is called.
a) Statutory Liquid Ratio.
b) Deposit Ratio.
c) Cash Reserve Ratio.
d) Legal Reserve Ratio.

36 is the fraction of deposit which all commercial banks are required to 1

keep with the central bank.
a) Cash Reserve Ratio.
b) Legal Reserve Ratio.
c) Deposit Ratio.
Repo Rate.
37 Assertion (A): Money kept with RBI is the part of money supply in India. 1
Reason (R): RBI supply money in India.
a) Both (A) and (R) are true and Reason is the correct explanation of
Assertion.
b) Both (A) and (R) are true and Reason is not the correct explanation of
Assertion.
c) (A) is true but (R) is false.
d) (A) is false but (R) is true.

38 If the reserve ratio is 20%, what will be the amount of total reserves after an 1
initial deposit of ₹200?
a) 4,000.
b) 2,000.
c) 1,000.
d) 400.

39 Statement 1: Primary deposits indicate savings of the depositors with the banks. 1
Statement 2: Secondary deposits indicate borrowing of the depositors from the
banks.
a) Both statements are true.
b) Both statements are false.
c) Statement 1 is true and Statement 2 is false.
 d) Statement 1 is false and Statement 2 is true.

40 Statement 1: A fall in SLR increases money supply on the economy. 1

Statement 2: Fall in SLR enhances capacity of the commercial banks to create
credit
a) Both statements are true.
b) Both statements are false.
c) Statement 1 is true and Statement 2 is false.
d) Statement 1 is false and Statement 2 is true.

41 State the meaning and components of money supply. 3

42 Explain the significance of 'medium of exchange function of money? 3
43 Explain 'Government's Bank' function of Central Bank? 3
44 How can the ‘marginal requirement of loan’ be used as an instrument of credit 3
control ?
45 Explain the significance of the "Store of value" function of money. 3
46 Bring out the role of Central Bank as the controller of money supply or credit 3
using Bank rate
47 How does central bank control availability of credit by open market operations? 3
48 What is Legal Reserve Ratio? Explain its components. 3
49 Suppose all the customers of a commercial bank demand for their deposits at 3
the same time then how does central bank help to commercial bank in this
situation?
50 Money acts as a yardstick of standard measure of value to which all other 3
things can be compared. Discuss it.

51 Explain the role of the Reserve Bank of India as the “lender of last resort” 3
52 Give meaning of money supply. State its components. 3
53 Calculate the value of multiplier if legal reserve requirements are 20% 4
54 How will Reverse Repo rate control money supply at the time of inflation in an 4
economy ?
55 Money acts as a yardstick of standard measure of value to which all other 4
things can be compared. Discuss it.
56 Explain the “Bank of Issue Function” of the central Bank. 4
57 Which bank is known as Government’s Bank? Describe the function of 4
government bank.
58 Explain the “banker’s bank ’ function of a central bank. 4
59 Explain ‘Banker’s Bank’ function of central bank. 4
60 How does a central bank control the availability of credit by open market 4
operation
61 Read the following case study paragraph carefully and Answer: the questions 4
on the basis of the same.

The central bank of India i.e. Reserve Bank of India, is the apex institution that
control the entire financial market. It's one of the major functions is to maintain
the reserve of foreign exchange. Also, it intervenes in the foreign exchange
market to stabilise the excessive fluctuations in the foreign exchange rate.

In other words, it is the central bank's job to control a country's economy

through monetary policy; if the economy is moving slowly or going backward,
there are steps that central bank can take to boost the economy. These steps,
whether they are asset purchases or printing more money, all Involve injecting
 more cash into the economy. The simple supply and demand economic
projection occur and currency will devalue.
When the opposite occurs, and the economy is growing, the central bank will
use various methods to keep that growth steady and in-line with other
economic factors such as wages and prices. Whatever the central bank does or
in fact don't do, will affect the currency of that country. Sometimes, it is within
the central bank's interest to purposefully effect the value of a currency. For
example, if the economy is heavily reliant on exports and their currency value
becomes too high, importers of that country's commodities will seek cheaper
supply; hence directly effecting the economy.

1. Which of the following tools are used by the central bank to control
the flow of money in domestic economy?
(a) Fiscal tools(b) Quantitative monetary tools
(c) Qualitative monetary tools (d) Both (b) and (c)

2. Dear money policy of central bank, which is used to keep the

growth steady and in-line with other economic factors, refers to
a) Tighten the money supply in the economy
b) Ease the money supply in the economy
c) Allow commercial banks to work under less strict environment
d) Both (b) and (c)
3. Which of the following steps should be taken by the central bank if
there is an excessive rise in the foreign exchange rate?
(a) Supply foreign exchange from its stock
(b) Demand more of other foreign exchange
(c) Not intervene in the market as the exchange rate is determined by
the market forces
(d) Help central government to stabilize the foreign exchange rate
4. The central bank does not perform the following functions.
(a) conducts sale and purchase of securities for foreign governments
securities.
(b) acts as a lender of the last resort.
(c) controls money supply and credit.
(d) manages the nation’s reserves of international currency.

62 What is credit creation? 4

63 How do changes in cash reserve ratio affect availability of credit? Explain. 4

64 Distinguish between central bank and commercial banks. 4

65 Read the following case study carefully and answer the questions 1-2 on the 6
basis of the same:

The Reserve Bank of India has the sole right to issue bank notes in India. The
bank notes are legal tender guaranteed by the Central Government. The issue of
bank note is conducted by a separate department called issue department. The
Central Government on the recommendation of Central Board specifies
denomination of bank notes including discontinuance of bank notes.
The Central Government approves design, form and material of bank notes
on consideration of recommendations of the Central Board. The Reserve is
empowered to formulate banking policy in the interest of the public or
depositors banking policy in relation to advances and provide direction on the
 purpose of the advances, margins to be maintained in a secured advances, the
maximum amount of advance may be made, the rate of interest, terms and
conditions for advances or guarantees may be given.

1. "RBI acts as a bankers' bank and performs a supervisory role as

well." Comment.
2. Explain banker to the government function of RBI.

66 (A) - State any two components of M, measure of 6

Money Supply.
(B) Elaborate and two instruments of credit control, as exercised by the Reserve
Bank of India.
67 Explain the functions of the central bank. 6
68 Analyse the role of Central Bank as ‘Banker’s Bank’. 6
69 Discuss ‘Banker to the Govt’ function of central bank. 6
70 How does money solve the problem of double coincidence of wants? Explain 6
with an example.
71 (i) What is meant by Cash Reserve Ratio? How does it increase the money 6
Supply in the economy? (ii) What is meant by Open Market Operation? How
does it reduce the money supply in the economy?
72 Define money and explain the functions of money. 6
73 The Government of India launched ‘Jan-DhanYojna’ aimed at every household 6
in the country to have at least one bank account. Explain how deposits made
under the plan are going to affect the national income of the country.
74 Explain the process of Money creation by the commercial banks with the help 6
of a numerical example.
or
What role does it play in determining the credit creation power of the banking
system? Use a numerical illustration to explain.
75 What are the functions of money? 6
OR
Explain primary and secondary functions of money.
76 Explain the function of central bank 6