hitechpathshala

Q. 1

If commercial banks reduce their holdings of excess reserves

the monetary base increases.

the monetary base falls.

the money supply increases.

the money supply falls.

Q. 2

For a given level of the monetary base, an increase in the currency ratio causes the money multiplier to _____ and the money supply to _____.

decrease; increase

increase; decrease

decrease; decrease

increase; increase

Q. 3

For a given level of the monetary base, an increase in the required reserve ratio will denote

a decrease in the money supply.

an increase in the money supply

an increase in demand deposits.

Nothing precise can be said

Q. 4

The ratio that relates the change in the money supply to a given change in the monetary base is called the

required reserve ratio.

money multiplier.

deposit ratio.

discount rate.

Q. 5

The money multiplier will be large

for higher currency ratio (c), lower required reserve ratio (r) and lower excess reserve ratio (e)

for constant currency ratio (c), higher required reserve ratio (r) and lower excess reserve ratio (e)

for lower currency ratio (c), lower required reserve ratio (r) and lower excess reserve ratio (e)

None of the above

Q. 6

_____________tells us how much new money will be created by the banking system for a given increase in the high-powered money.

The currency ratio

The excess reserve ratio (e)

The credit multiplier

The currency ratio (c)

Q. 7

The size of the money multiplier is determined by

the currency ratio (c) of the public,

the required reserve ratio (r) at the central bank, and

the excess reserve ratio (e) of commercial banks

all the above

Q. 8

The currency ratio represents

the behaviour of central bank in the issue of currency

the behaviour of central bank in respect cash reserve ratio.

the behaviour of the public

the behaviour of commercial banks in the country.

Q. 9

The money multiplier and the money supply are

positively related to the excess reserves ratio e.

negatively related to the excess reserves ratio e.

not related to the excess reserves ratio e.

proportional to the excess reserves ratio e

Q. 10

Under the fractional reserve system

the money supply is an increasing function of reserve money (or high powered money) and the money multiplier.

the money supply is an decreasing function of reserve money (or high powered money) and the money multiplier.

the money supply is an increasing function of reserve money (or high powered money) and a decreasing function of money multiplier.

none of the above as the determinants of money supply are different

Q. 11

An open market operation is an instrument of monetary policy which involves buying or selling of ________from or to the public and banks.

bonds and bills of exchange

debentures and shares

government securities

none of these

Q. 12

The Monetary Policy Framework Agreement is on

the maximum repo rate that RBI can charge from government

the maximum tolerable inflation rate that RBI should target to achieve price stability.

the maximum repo rate that RBI can charge from the commercial banks

the maximum reverse repo rate that RBI can charge from the commercial banks

Q. 13

Reverse repo operation takes place when

RBI borrows money from banks by giving them securities

banks borrow money from RBI by giving them securities

banks borrow money in the overnight segment of the money market

RBI borrows money from the central government

Q. 14

In India, the term ‘Policy rate’ refers to

The bank rate prescribed by the RBI in its half yearly monetary policy statement

The CRR and SLR prescribed by RBI in its monetary policy statement

the fixed repo rate quoted for sovereign securities in the overnight segment of Liquidity Adjustment Facility (LAF)

the fixed repo rate quoted for sovereign securities in the overnight segment of Marginal Standing Facility (MSF)

Q. 15

______________is a money market instrument, which enables collateralised short term borrowing and lending through sale/purchase operations in debt instruments.

OMO

CRR

SLR

Repo

Q. 16

RBI provides financial accommodation to the commercial banks through repos/reverse repos under

Market Stabilisation Scheme (MSS)

The Marginal Standing Facility (MSF)

Liquidity Adjustment Facility (LAF)

Statutory Liquidity Ratio (SLR)

Q. 17

Which of the following statements is correct?

The governor of the RBI in consultation with the Ministry of Finance decides the policy rate and implements the same

While CRR has to be maintained by banks as cash with the RBI, the SLR requires holding of approved assets by the bank itself

When repo rates increase, it means that banks can now borrow money through open market operations (OMO)

None of the above

Q. 18

During deflation

the RBI reduces the CRR in order to enable the banks to expand credit and increase the supply of money available in the economy

the RBI increases the CRR in order to enable the banks to expand credit and increase the supply of money available in the economy

the RBI reduces the CRR in order to enable the banks to contract credit and increase the supply of money available in the economy

the RBI reduces the CRR but increase SLR in order to enable the banks to contract credit and increase the supply of money available in the economy

Q. 19

A contractionary monetary policy‐induced increase in interest rates

increases the cost of capital and the real cost of borrowing for firms

increases the cost of capital and the real cost of borrowing for firms and households

decreases the cost of capital and the real cost of borrowing for firms

has no interest rate effect on firms and households

Q. 20

The nominal demand for money rises if

the opportunity costs of money holdings – i.e. bonds and stock returns, rB and rE , respectively- decline and vice versa

the opportunity costs of money holdings – i.e. bonds and stock returns, rB and rE , respectively- rises and vice versa

the opportunity costs of money holdings – i.e. bonds and stock returns, rB and rE , respectively remain constant

b) and c) above

Q. 21

___________ considered demand for money is as an application of a more general theory
of demand for capital assets

Baumol

James Tobin

J M Keynes

Milton Friedman

Q. 22

According to Baumol and Tobin’s approach to demand for money, the optimal average money holding is:

a positive function of income Y and the price level P

a positive function of transactions costs c,

a negative function of the nominal interest rate i

All the above

Q. 23

The inventory-theoretic approach to the transactions demand for money

explains the negative relationship between money demand and the interest rate.

explains the positive relationship between money demand and the interest rate.

explains the positive relationship between money demand and general price level

explains the nature of expectations of people with respect to interest rates and bond prices

Q. 24

According to Keynes, if the current interest rate is high

people will demand more money because the capital gain on bonds would be less than return on money

people will expect the interest rate to rise and bond price to fall in the future.

people will expect the interest rate to fall and bond price to rise in the future.

Either a) or b) will happen

Q. 25

Speculative demand for money

is not determined by interest rates

is positively related to interest rates

is negatively related to interest rates

is determined by general price level

Q. 26

The precautionary money balances people want to hold

as income elastic and not very sensitive to rate of interest

as income inelastic and very sensitive to rate of interest

are determined primarily by the level of transactions they expect to make in the future.

are determined primarily by the current level of transactions

Q. 27

Fisher’s approach and the Cambridge approach to demand for money consider

money’s role in acting as a store of value and therefore, demand for money is for storing value temporarily.

money as a means of exchange and therefore demand for money is termed as for liquidity preference

money as a means of transactions and therefore, demand for money is only transaction demand for money.

None of the above

Q. 28

The Cambridge approach to quantity theory is also known as

Cash balance approach

Fisher’s theory of money

Classical approach

Keynesian Approach

Q. 29

The quantity theory of money holds that

changes in the general level of commodity prices are caused by changes in the quantity of money

there is strong relationship between money and price level and the quantity of money is the main determinant of the price

changes in the value of money or purchasing power of money are determined first and foremost by changes in the quantity of money in circulation

All the above

Q. 30

Higher the ______________, higher would be ________________of holding cash and lower will

be the ______________________

demand for money, opportunity cost, interest rate

price level , opportunity cost, interest rate

real income , opportunity cost, demand for money

interest rate, opportunity cost, demand for money

Money Market

Marks: 30