MONEY MARKET

1. If there were no money, we would be reduced to a _____.

(a) Non-Monetary Economy
(b) Barter Economy
(c) Monetary Economy
(d) None of the above
2. Fiat money is materially _____ but has ____ simply because a nation collectively agreed to
ascribe a value to it.
(a) Worthless, value
(b) Valuable, worthless
(c) Transparent, liquid
(d) Liquid, exchangeability
3. Which of the following is Not a part of general characteristics that money should possess in
order to make it serve its function as money.
(a) Generally Acceptable & possessing uniformity
(b) Durable or long-lasting
(c) Portable & effortlessly recognizable
(d) Easily counterfeitable
4. Barter exchange refers to exchange of goods/services for goods/services. Which of the
following is the limitation of Barter exchange?
(a) Lack of Double coincidence of wants
(b) Lack of store of value
(c) Lack of common measure of value
(d) All of the above
5. Which of the following is the primary function of money?
(a) Medium of exchange
(b) Standard of Deferred Payments
(c) Store of value

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 (d) All of the above
6. Which function of money is also known by the name of "Unit of Account"?
(a) Medium of exchange
(b) Standard of deferred Payments
(c) Measure of value
(d) Store of valuable
7. Which one of the following form of legal tender money can be paid in discharge of a debt
up to a certain limit only?
(a) Coins
(b) Paper Notes
(c) Cheques
(d) Bank Draft
8. Higher the would be and lower will be the
(a) Demand for money, opportunity cost, interest rate
(b) Price level, opportunity cost, interest rate
(c) Real income, opportunity cost, demand for money
(d) Interest rate, opportunity cost, demand for money
9. The money is demanded for its purchasing power. Therefore, the demand for money is in
the nature of ____.
(a) Purchasing power demand
(b) Real power demand
(c) Direct demand.
(d) Derived demand
10. The demand for money is actually
(a) Demand for liquidity
(b) Demand to store value
(c) Both (a) and (b)
(d) None of the above

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 11. Which one of the following is not a theory of Demand for money?
(a) The quantity theory of money
(b) Hicksian theory of Demand
(c) Cash Balance Approach
(d) Keynesian theory of Demand for money
12. The quantity theory of money holds that:
(a) Changes in the general level of commodity prices are caused by changes in the quantity of
money
(b) There is strong relationship between money and price level and the quantity of money is the
main determinant of the price
(c) 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
(d) All of the above
13. As per fisher's expanded quantity theory of money, the total value of transactions made is
equal and the value of money flow is equal to
(a) MV; PT
(b) PT; MV
(c) PT; MV+M'V'
(d) MV+M',V'; PT
14. The Cambridge approach to quantity theory is also known as:
(a) Cash balance approach
(b) Fisher's theory of money
(c) Classical approach
(d) Keynesian Approach
15. The Cambridge money demand function is stated as follows: M2=KPY.
In this equation, PY stands for:
(a) National Income
(b) Real National Income

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 (c) Nominal Income
(d) Real Income.
16. In Cambridge money demand function, ______ is a parameter reflecting the proportion of
national income (PY) that people want to hold as cash balance:
(a) M
(b) K
(c) P
(d) Y
17. Real money is:
(a) Nominal money adjusted to the price level
(b) Real national income
(c) Money demanded at given rate of interest
(d) Nominal GNP divided by price level
18. The precautionary money balances people want to hold ____.
(a) As income elastic and not very sensitive to rate of interest
(b) As income inelastic and very sensitive to rate of interest
(c) Are determined primarily by the level of transactions they expect to make in the future
(d) Are determined primarily by the current level of transactions
19. Under _____ motive, people hold money in cash form or liquid form for unforeseen
contingencies such as sickness, accident, danger of unemployment and other uncertain perils.
(a) Transaction
(b) Speculative
(c) Precautionary
(d) Non-contingency
20. According to Keynes, if the current interest rate is high:
(a) People will demand more money because the capital gain on bonds would be less than
return on money
(b) People will expect the interest rate to rise and bond price to fall in the future

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 (c) People will expect the interest rate to fall and bond price to rise in the future
(d) Either (a) or (b) will happen
21. Under liquidity preference theory, if the current rate of interest is lower than the critical
rate of interest, his asset portfolio would consist.
(a) Only government bonds
(b) Wholly of cash
(c) Both cash and bonds equally
(d) Either cash or bonds
22. The present expected value of all future income is Friedman's measure of wealth.
Friedman's regarded this as
(a) Permanent income
(b) Current income
(c) Temporary income
(d) Flexible income
23. The supply of money in the economy depends on the decision of :
(a) Commercial Banks
(b) Central Bank
(c) Ministry of Finance
(d) Central Government
24. Paper currency is a:
(a) Representative Money
(b) Full-bodied Money
(c) Metallic Money
(d) None of the above
25. The primary source of money
supply in all countries is:
(a) The Reserve Bank of India
(b) The Central bank of the country

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 (c) The Bank of England
(d) The Federal Reserve
26. The supply of money in an economy depends on.
(a) The decision of the central bank based on the authority conferred on it
(b) The decision of the central bank and the supply responses of the commercial banking system
(c) The decision of the central bank in respect of high-powered money
(d) Both (a) and (c) above
27. Till 1967-68, the RBI used to publish ____ measure of money supply.
(a) M,
(b) M, and M2
(c) M1, M2 and M3
(d) M, M2, M3 and M2
28. In India, who releases data on money supply?
(a) RBI
(b) Central Government
(c) Ministry of Finance
(d) Commercial Banks
29. Consider the following data:
M, ₹ 42,90,550 crores
M2 ₹ 44,42,695 crores
Calculate the value of Post Office Saving Bank Deposits.
(a) ₹ 87,33,245
(b) ₹ 1,52,145
(c) ₹ 3,04,290
(d) None of these

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 Consider the following data and answer the following questions 30-32.

30. What is the amount of Narrow Money (M,)?

(a) ₹ 2,85,000 crores
(b) ₹ 3,15,000 crores
(c) ₹ 3,95,000 crores
(d) None of the above
31. The calculated value of M2 is
(a) ₹ 2,85,000 crores
(b) ₹ 3,95,000 crores
(c) ₹ 3,15,000 crores
(d) None of the above
32. The value of M, will be ____.
(a) ₹ 2,85,000 crores
(b) ₹ 3,95,000 crores
(c) ₹ 3,15,000 crores
(d) None of the above
33. For a given level of the monetary base, an increase in the required reserve ratio will
denote
(a) A decrease in the money supply
(b) An increase in the money supply
(c) An increase in demand deposits

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 (d) Nothing precise can be said
34. The money multiplier approach to money Supply considers three factors as immediate
determinants of money supply. Which one of the following is not included in these factors?
(a) Stock of high-powered money(H)
(b) The ratio of reserves to deposits or reserve-ratio (r)
(c) The ratio of currency to deposits or currency-deposit ratio (c)
(d) The ratio of high-powered money to deposits (h)
35. Whose behavior among the following, has been considered, under Money Multiplier
approach?
(a) Central Bank
(b) Commercial Banks
(c) General Public
(d) All of the above
36. The required reserved ratio is 10% for every ₹ 2,00,000 deposited in the banking system.
What will be the Credit Multiplier and Credit Creation?
(a) 10, ₹ 20,00,000
(b) 10, ₹ 20,000
(c) 8, ₹ 20,00,000
(d) 8, ₹ 20,000
37. When reserve ratio (r) is 8%, the money multiplier is calculated at 2.58. If the reserve ratio
is increased to 12%, the value of money multiplier will be
(a) Less than 2.58
(b) More than 2.58
(c) 2.58
(d) Cannot be decided
38. If required reserve ratio is 20%, then what will be credit multiplier?
(a) 0.2
(b) 0.8

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 (c) 1.2
(d) 5
39. The total deposits created by the commercial banks is ₹ 16,800 crores and the required
reserve ratio is 12.5%. Calculate the amount of initial deposits.
(a) ₹ 16,800
(b) ₹ 2,100
(c) ₹ 18,900
(d) None of these
40. Initial Deposit of₹ 1,521 crores lead to creation of total deposits of ₹ 12,168 crores by the
commercial banks. What is required reserve ratio?
(a) 15%
(b) 12.5%
(c) 10%
(d) 7.5%
41. Which of the following is an explicit objective included in the monetary policy of
developing countries?
(a) Maintenance of economic growth
(b) Ensuring an adequate flow of credit to the productive sectors
(c) Sustaining a moderate structure of interest rates to encourage investments, and creation of
an efficient market for government securities
(d) All of the above
42. The monetary transmission mechanism refers to:
(a) How money gets circulated in different sectors of the economy post monetary policy
(b) The ratio of nominal interest and real interest rates consequent on a monetary policy
(c) The process or channels through which the evolution of monetary aggregates affects the
level of product and prices
(d) None of the above
43. A contractionary monetary policy-induced increase in interest rates.
(a) Increases the cost of capital and the real cost of borrowing for firms

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 (b) Increases the cost of capital and the real cost of borrowing for firms and households
(c) Decreases the cost of capital and the real cost of borrowing for firms
(d) Has no interest rate effect on firms and households
44. Which of the following Statements is incorrect?
(a) Quantitative instruments are general in nature
(b) Quantitative instruments affects all the sectors making use of bank credit
(c) Quantitative controls are designed to regulate the direction of credit
(d) Quantitative Controls are also known as traditional methods of control
45. As a part of credit control instruments of RBI, which of the following is not a part of
Quantitative method?
(a) Cash Reserve Ratio (CRR)
(b) Statutory Liquidity Ratio (SLR)
(c) Open Market Operations (OMO)
(d) Margin requirements
46. As a part of open market operations, sale of securities by the Central Bank _____ the
money supply in the economy.
(a) Decreases
(b) Increases
(c) Brings no change in
(d) Either (a) or (b)
47. _____ refers to the minimum percentage of net demand and time liabilities, to be kept by
commercial banks with the central bank.
(a) Statutory Liquidity Ratio
(b) Cash Reserve Ratio
(c) Bank Rate
(d) Repo Rate
48. Under ____ the Government of India borrows from the RBI (Such borrowing being
additional to its normal borrowing requirements) and issues treasury bills/dated securities.

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 (a) Market Stabilisation Scheme (MSS)
(b) Minimum Statutory Scheme (MSS)
(c) Marginal Standing Pacility (MSF)
(d) Minimum Statutory Facility (MSF)

49. ____ is defined as an instrument for lending funds by purchasing securities with an
agreement to resell the securities on a mutually agreed future date at an agreed price which
includes interest for the funds lent.
(a) Reverse Repo
(b) Repo Rate
(c) Bank Rate
(d) MSF
50. The Monetary Policy Framework Agreement is an agreement reached between the
Government of India and the Reserve Bank of India (RBI) to keep the Consumer Price Index
(CPI) inflation rate between
(a) 1 to 5 per cent
(b) 2 to 6 per cent
(c) 3 to 5 per cent
(d) 4 to 6 per cent

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 ANSWER KEY:
1 (b) 2 (a) 3 (d) 4 (d) 5 (a) 6 (c) 7 (a) 8 (d) 9 (d) 10 (c)

11 (b) 12 (d) 13 (c) 14 (a) 15 (c) 16 (b) 17 (a) 18 (a) 19 (c) 20 (c)

21 (b) 22 (a) 23 (b) 24 (a) 25 (b) 26 (b) 27 (a) 28 (a) 29 (b) 30 (a)

31 (c) 32 (b) 33 (a) 34 (d) 35 (d) 36 (a) 37 (a) 38 (d) 39 (b) 40 (b)

41 (d) 42 (c) 43 (b) 44 (c) 45 (d) 46 (a) 47 (b) 48 (a) 49 (a) 50 (b)

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