Macroeconomics - Money, Banking, and RBI - MCQs with answers - Part II

Macroeconomics - Money, Banking, and RBI - MCQs with answers - Part II


1) What is 'Bank rate'?

a) The rate at which commercial banks borrow money from RBI
b) The rate at which commercial banks lend money to customers
c) The rate at which commercial banks lend money to RBI
d) none of the above

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ANSWER: a) The rate at which commercial banks borrow money from RBI

Bank rate is the rate at which commercial banks can borrow money from the RBI. If the rate is higher, then taking money from RBI becomes difficult, so the banks will lend less to public. And vice-versa.



2) In monetary terminology, what is called the 'monetary base' or 'high powered money'?

a) the total assets of RBI
b) the total liability of RBI
c) the total debt of the government
d) the total foreign exchange of RBI

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ANSWER: b) the total liability of RBI

This includes the currency (notes and coins in circulation and vault cash of commercial banks) along with the deposits held by the Government of India ad commercial banks with RBI.



3) The RBI can increase the money supply in the market by:

a) selling government securities
b) buying government securities
c) borrowing money from commercial banks
d) none of the above

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ANSWER: b) buying government securities



4) The RBI can decrease the money supply in the market by:

a) selling government securities
b) buying government securities
c) borrowing money from commercial banks
d) none of the above

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ANSWER: a) selling government securities



5) By increasing the 'Bank Rate', the RBI can:

a) provide incentives to commercial banks to lend more to public
b) provide incentives to commercial banks to lend less to public
c) increase the money supply in the market
d) none of the above

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ANSWER: b) provide incentives to commercial banks to lend less to public

Bank rate is the rate at which commercial banks can borrow money from the RBI. If the rate is higher, then taking money from RBI becomes difficult, so the banks will lend less to public. And vice-versa.



6) The process by which RBI or any Central bank protects the economy against adverse economic shocks is known as :

a) protection
b) liberalization
c) stabilization
d) sterilization

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ANSWER: d) sterilization

RBI does this by performing a host of operations, for example controlling the Bank Rate, buying or selling government securities, etc


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