Monetary Policy(12th Grade > Economics - 2 ) Questions and answers for exam Preparation

12th Grade > Economics - 2

MONETARY POLICY MCQs

Total Questions : 28 | Page 1 of 3 pages

Question 1. "Open Market Operations" refers to:

Sale and purchase of bonds and securities by the commercial banks to the customers.
Sale and purchase of bonds and securities to the commercial banks by the RBI.
Sale and purchase of bonds and securities by the RBI to the government.
None of the above

Discuss Question

Answer: Option B. -> Sale and purchase of bonds and securities to the commercial banks by the RBI.
:
B
Open Market Operations means sale and purchase of bonds and securities to the commercial banks by the RBI.

Question 2. The increase in the ___will increase the cost of borrowing and lending of the banks.

Repo Rate
Reverse Repo Rate
Base Rate
None of these

Discuss Question

Answer: Option A. -> Repo Rate
:
A
The increase in the Repo Rate will increase the cost of borrowing and lending of the banks.

Question 3. The rate at which RBI lends money to commercial banks is called:

Repo rate
Reverse repo rate
Revised repo rate
Renewal repo rate

Discuss Question

Answer: Option A. -> Repo rate
:
A
The rate at which the RBI lends money to commercial banks is called Repo rate.

Question 4. Which of the following is NOT true about the central bank?

It deals directly with commercial banks and the public
It has full control over the money supply
It is the custodian of reserves
It is the sole authority to issue currency notes

Discuss Question

Answer: Option A. -> It deals directly with commercial banks and the public
:
A
The central bank only deals with commercial banks, and not directly with the public. Other statements are correct.

Question 5. Which of the following is(are) indirect instruments of Monetary Policy?

Open market operations
Cash Reserve Ratio
Statutory Liquidity Ratio
None of the above

Discuss Question

Answer: Option D. -> None of the above
:
D
All the given options are direct insturments of monetary policy.

Question 6. The maximum limit of SLR is___

Discuss Question

Answer: Option D. -> 40%
:
D
The maximum limit of SLR is 40%.

Question 7. If the CRR is 5%, what is the value of money multiplier?

Discuss Question

Answer: Option C. -> 20
:
C
Money Multiplier

= \frac{1}{C R R}

= \frac{1}{\frac{5}{100}} = 20

Question 8. Open market operations as an instrument of credit control are performed by:

The central bank of the country
The commercial bank of the country
Both commercial banks and the central bank
None of these

Discuss Question

Answer: Option A. -> The central bank of the country
:
A
Open market operations as an instrument of credit control are performed by RBI.

Question 9. Unconventional monetary policies have not been regarded successful in most cases in the past. State true or false.

True
False
State and Central Co-operative Banks
All of the above

Discuss Question

Answer: Option B. -> False
:
B
Unconventional monetary policies have been followed by several economies and in most of the cases, it has been successful. For example, quantitative easing policy adopted by Bank of Japan in 2000 was regarded successful.

Question 10. If price drops and people are not willing to pay increased prices despite having more money, this leads to inflation.

True
False
Base Rate
None of these

Discuss Question

Answer: Option B. -> False
:
B
If prices increase, then this will be counted as inflation. If people don’t want to buy goods, this is another issue. Inflation measures the price of goods in shops.