Mock Test – Money and Banking

1. Assertion (A): Credit creation is inversely related to legal reserve ratio.

Reason (R): If more money is kept with banks themselves and with RBI, then lending capacity of banks decreases.

2. Mr. Kishan, an economics teacher, was explaining the concept of ‘sometimes commercial banks are in need of funds in emergency and this happens in times when banks suffer the ‘crisis of confidence’ of its depositors’. From the following, choose the correct alternative which specifies the function of central bank explained by him.

3. Suppose in an economy, the initial deposits of  400 crores lead to the creation of total deposits worth  4000 crores.

Under the given situation, the value of reserve requirements would be ___________.

4. The monetary policy generally targets to ensure:

5. Which of the following is not the function of the central bank?

6. Credit cards are excluded from all measures of the quantity of money, because they are not really a method of payment, but a method of deferring payment. When you buy a meal with a credit card, the bank that issued the card pays the restaurant the amount that is due. At a later date, you will have to repay the bank, perhaps with interest. For this, you might use the money in your demand deposits, and that money is included in the economy’s stock of money. Which of the following can happen with an increased use of credit cards in an economy?

7. The part of LRR kept by the banks themselves is called:

8. The value of money multiplier is:

9. The central bank can increase availability of credit by:

10. ‘Money enables people to save.’ Which function of money is indicated here?

11. Read the given image carefully and choose the correct pair from the alternatives given below:

12. Money supply is a __________ concept.

13. Assertion (A): Money supply in India include demand deposits with commercial banks.

Reason (R): Demand deposits with commercial banks means fixed deposits.

14. Number of times the total deposits would be of the initial deposit is determined by __________.

15. ________ is the primary function of money.

16. Assertion (A): The monetary policy is a policy formulated by the central bank.

Reason (R): The policy involves measures taken to regulate the supply of money, availability, and cost of credit in the economy.

17. The Reserve Bank of India can increase the money supply in the economy by:

18. Suppose money created by the banking system is  1,000 and the primary deposits is  250. The respective values of deposit multiplier and reserve ratio would be __________ and _________.

19. Money supply in India is:

20. If the reserve ratio is 20%, what will be the amount of total reserves after an initial deposit of  200?

21. Which of the following institution(s) performs the activity of credit creation?

22. The ‘lender of last resort’ means:

23. __________ is an institution that accept deposits for lending purpose

24. ‘Money is an asset which can be stored for use in future.’ In the light of given statement, identify the function of money.

25. 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 clearing house for transfer and settlement of mutual claims of commercial banks.

26. ____________ is responsible for issuing  1 currency note in India.

27. Read the given image carefully and choose the correct pair from the alternatives given below:

28. “Reserve Bank of India (RBI) imposes  25 lakh penalty on Axis Bank for violating KYC rules.” —September 1, 2020 A person read this headline and wondered which of the following functions, RBI has performed while doing this?

29. The term _________ refers to the act of stripping a currency unit of its status as legal tender.

30. Which of the following is correct with reference to Ministry of Finance?