Q.1 What is the primary function of money?
Store of value
Medium of exchange
Measure of wealth
Means of production
Explanation - Money primarily serves as a medium of exchange, facilitating transactions by eliminating the need for a barter system.
Correct answer is: Medium of exchange
Q.2 Which of the following is NOT a function of money?
Unit of account
Standard of deferred payments
Production of goods
Store of value
Explanation - Money does not produce goods; it only facilitates transactions and value measurement.
Correct answer is: Production of goods
Q.3 Fiat money is money that:
Has intrinsic value
Is backed by gold
Has no intrinsic value but is accepted by law
Is only used internationally
Explanation - Fiat money derives its value from government decree, not from physical backing like gold or silver.
Correct answer is: Has no intrinsic value but is accepted by law
Q.4 Who is the lender of last resort in most economies?
Commercial banks
Central bank
World Bank
Stock exchanges
Explanation - The central bank provides emergency funding to commercial banks in times of financial crisis, acting as the lender of last resort.
Correct answer is: Central bank
Q.5 Which of the following best describes M1 money supply?
Cash, demand deposits, and checking accounts
Cash plus gold reserves
Only coins and notes
All financial assets
Explanation - M1 includes the most liquid forms of money: currency, demand deposits, and checking accounts.
Correct answer is: Cash, demand deposits, and checking accounts
Q.6 What does CRR stand for in banking?
Cash Reserve Ratio
Credit Reserve Requirement
Capital Risk Ratio
Currency Regulation Rule
Explanation - CRR is the percentage of a commercial bank's deposits required to be kept with the central bank as reserves.
Correct answer is: Cash Reserve Ratio
Q.7 Which of these instruments is a part of monetary policy?
Taxation
Public expenditure
Repo rate
Subsidies
Explanation - Repo rate is a tool of monetary policy used by central banks to control liquidity and inflation.
Correct answer is: Repo rate
Q.8 The process by which banks create money is called:
Money printing
Monetary expansion
Credit creation
Currency circulation
Explanation - Through lending, banks create deposits, which increases the money supply. This process is known as credit creation.
Correct answer is: Credit creation
Q.9 Which of these is considered near money?
Fixed deposits
Coins
Notes
Gold ornaments
Explanation - Near money refers to assets that are not cash but can be quickly converted into cash, such as fixed deposits.
Correct answer is: Fixed deposits
Q.10 What is the main objective of monetary policy?
Maximize exports
Control inflation and stabilize currency
Increase taxation
Reduce imports
Explanation - Monetary policy aims to maintain price stability, control inflation, and ensure economic stability.
Correct answer is: Control inflation and stabilize currency
Q.11 Which of the following is an example of high-powered money?
Savings deposits
Currency issued by central bank
Fixed deposits
Credit created by commercial banks
Explanation - High-powered money refers to the base money issued directly by the central bank, such as notes and coins.
Correct answer is: Currency issued by central bank
Q.12 Which institution controls the supply of money in an economy?
Commercial banks
Central bank
Ministry of Finance
Stock exchange
Explanation - The central bank regulates money supply, credit, and monetary policy in the economy.
Correct answer is: Central bank
Q.13 What does SLR stand for in banking?
Statutory Liquidity Ratio
Standard Lending Rate
Savings and Loan Ratio
Statutory Lending Requirement
Explanation - SLR is the minimum percentage of commercial banks’ net demand and time liabilities that must be maintained in liquid assets.
Correct answer is: Statutory Liquidity Ratio
Q.14 What is meant by 'monetary base'?
Total bank deposits
Currency in circulation plus reserves with the central bank
Foreign exchange reserves
Credit created by banks
Explanation - The monetary base consists of currency in circulation and bank reserves held with the central bank.
Correct answer is: Currency in circulation plus reserves with the central bank
Q.15 Which of the following is NOT part of the functions of a central bank?
Issuing currency
Controlling monetary policy
Providing personal loans
Acting as lender of last resort
Explanation - Central banks do not provide personal loans; they regulate monetary policy and ensure financial stability.
Correct answer is: Providing personal loans
Q.16 What does 'repo rate' mean?
Rate at which banks lend to RBI
Rate at which RBI lends to commercial banks
Rate of fixed deposits
Rate of personal loans
Explanation - Repo rate is the interest rate at which the central bank lends short-term funds to commercial banks.
Correct answer is: Rate at which RBI lends to commercial banks
Q.17 Which type of money is backed by precious metals like gold?
Fiat money
Commodity money
Credit money
Plastic money
Explanation - Commodity money derives its value from a physical commodity such as gold or silver.
Correct answer is: Commodity money
Q.18 Which of the following is a qualitative tool of monetary policy?
Cash Reserve Ratio
Repo rate
Margin requirements
Statutory Liquidity Ratio
Explanation - Margin requirements regulate the amount of credit that can be extended for certain activities, making it a qualitative tool.
Correct answer is: Margin requirements
Q.19 Which economist is associated with the 'quantity theory of money'?
John Maynard Keynes
Irving Fisher
Adam Smith
Milton Friedman
Explanation - Irving Fisher developed the equation of exchange, central to the quantity theory of money.
Correct answer is: Irving Fisher
Q.20 Which of these is included in M3 money supply?
Only currency with the public
M1 plus time deposits with banks
Foreign currency reserves
Only fixed deposits
Explanation - M3 is a broader measure of money supply, which includes M1 and time deposits with banks.
Correct answer is: M1 plus time deposits with banks
Q.21 Which system existed before money was invented?
Credit system
Barter system
Fiat system
Banking system
Explanation - The barter system involved direct exchange of goods and services before money was introduced.
Correct answer is: Barter system
Q.22 What does 'monetary inflation' mean?
Increase in money supply
Increase in production
Increase in employment
Increase in exports
Explanation - Monetary inflation refers to an expansion of the money supply in the economy.
Correct answer is: Increase in money supply
Q.23 Which of these is an example of plastic money?
Debit card
Gold coin
Currency note
Cheque
Explanation - Plastic money refers to electronic payment instruments like debit or credit cards.
Correct answer is: Debit card
Q.24 What is the full form of RBI?
Reserve Bank of India
Regional Bank of India
Rural Banking Institution
Registered Bank of India
Explanation - RBI stands for Reserve Bank of India, which is the central bank of India.
Correct answer is: Reserve Bank of India
Q.25 What does 'open market operation' mean?
Lending money to public
Government spending on public works
Buying and selling government securities by central bank
Commercial banks issuing loans
Explanation - Open market operations are a key tool of monetary policy where the central bank buys or sells securities to regulate liquidity.
Correct answer is: Buying and selling government securities by central bank