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If in an economy Bank rate is increased, how will it affect the demand for credit ? Explain.
State and discuss any two monetary tools to control inflationary pressures in the economy.
Explain the role of Repo rate and Reverse Repo rate in correcting deflationary gap in an economy.
Read the following statements carefully : Statement 1 : Primary deposits are the cash deposits by general public with commercial banks. Statement 2 : Secondary deposits are those deposits which arise on account of credit provided by the commercial banks to the people. In light of the given statements, choose the correct alternative from the following :
The rate at which commercial banks borrow from the Reserve Bank of India to meet their long term requirements is known as ____________. (Choose the correct alternative to fill up the blank)
Read the following news report carefully : "The central bank has imposed fine on Hisar Urban Cooperative Bank Ltd. and Andaman and Nicobar State Cooperative Bank Ltd. for violation of banking norms." According to the given report, identify the function of the central bank.
Read the following news published on September 26, 2022 : "The central bank has increased the benchmark lending rate by 140 basis points." Identify the likely cause and consequences behind this action taken by the Reserve Bank of India.
Explain the 'Government's Bank' function of the central bank. Using a hypothetical numerical example, explain the effect of rise in Reserve Ratio on credit creation by the commercial banks.
In the Indian economy, _____ are issued by the Reserve Bank of India and acts as legal tender money. (i) Coins of all denomination (ii) Currency notes of various denominations, except one rupee note (iii) Demand deposits Alternatives :
_____ formulates the Monetary Policy in the economy. (Fill up the blank with correct alternative)
“The process of credit creation by commercial banks comes to an end when the total of required reserves become equal to the initial deposits.” With the help of a numerical example, prove that the given statement is true.
Read the following text carefully. Answer the given questions on the basis of the same and common understanding : On 30th September 2022, the Reserve Bank of India (RBI) raised Repo Rate for the fourth time in a row. The Monetary Policy Committee (MPC) decided to raise the policy rate by 50 basis points (1 basis point = 1/100 th of a percent). After this announcement, the new repo rate stands at 5.9%, while the reverse repo rate continues to stand at 3.35%. Commercial banks borrow money from the Central Bank, when there is a shortage of funds. With the surge in the repo rate, borrowings by general public will become costlier. This is because, as RBI hikes its repo rate, it becomes costly for the banks to borrow short term funds from the Central Bank. As a result, the banks hike the rates at which customers borrow money from them to compensate for the hike in the repo rate. This happens because banks offer loans to retail consumers at an interest rate which is generally, directly proportional to the repo rate. The increase of 0.50 percent in repo rate will lead to a higher interest rates on loans for borrowers, implying that the Equated Monthly Instalments (EMIs) for repaying the existing loans will also increase. Source : https://www.businessstandard.com/article/economicpolicy/rbi-monetary-policy-repo-rate-up-by-50bps-here-s-how-it-will-impact-you-122093000267 (Edited) (a) Define ‘Repo Rate’. [1] (b) Outline the recent change made by the Monetary Policy Committee of Reserve Bank of India in the repo rate. [1] (c) “Increase in repo rate is an important tool used by Monetary Policy Committee to combat the situation of inflation in the Economy.” Justify the given statement. [4]
Read the following text carefully and answer the given questions on the basis of the same and common understanding. On 30th September 2022, the Reserve Bank of India (RBI) raised Repo Rate for the fourth time in a row. The Monetary Policy Committee (MPC) decided to raise the policy rate by 50 basis points (1 basis point = 1/100 th of a percent). After this announcement, the new repo rate stands at 5.9%, while the reverse repo rate continues to stand at 3.35%. Commercial banks borrow money from the Central Bank, when there is a shortage of funds. With the surge in the repo rate, borrowings by general public will become costlier. This is because, as RBI hikes its repo rate, it becomes costly for the banks to borrow short term funds from the Central Bank. As a result, the banks hike the rates at which customers borrow money from them to compensate for the hike in the repo rate. This happens because banks offer loans to retail consumers at an interest rate which is generally, directly proportional to the repo rate. The increase of 0.50 percent in repo rate will lead to a higher interest rates on loans for borrowers, implying that the Equated Monthly Instalments (EMIs) for repaying the existing loans will also increase. Source : https://www.businessstandard.com/article/economicpolicy/rbi-monetary-policy-repo-rate-up-by-50bps-here-s-how-it-will-impact-you-122093000267 (Edited) (a) State the meaning of repo rate and reverse repo rate. (b) In order to bring down the rate of inflation, outline and discuss the step taken by the Monetary Policy Committee of Reserve Bank of India.
Read the following text carefully and answer the given questions on the basis of the same and common understanding. On 30th September 2022, the Reserve Bank of India (RBI) raised Repo Rate for the fourth time in a row. The Monetary Policy Committee (MPC) decided to raise the policy rate by 50 basis points (1 basis point = 1/100 th of a percent). After this announcement, the new repo rate stands at 5.9%, while the reverse repo rate continues to stand at 3.35%. Commercial banks borrow money from the Central Bank, when there is a shortage of funds. With the surge in the repo rate, borrowings by general public will become costlier. This is because, as RBI hikes its repo rate, it becomes costly for the banks to borrow short term funds from the Central Bank. As a result, the banks hike the rates at which customers borrow money from them to compensate for the hike in the repo rate. This happens because banks offer loans to retail consumers at an interest rate which is generally, directly proportional to the repo rate. The increase of 0.50 percent in repo rate will lead to a higher interest rates on loans for borrowers, implying that the Equated Monthly Instalments (EMIs) for repaying the existing loans will also increase. Source : https://www.businessstandard.com/article/economicpolicy/rbi-monetary-policy-repo-rate-up-by-50bps-here-s-how-it-will-impact-you-122093000267 (Edited) (a) Differentiate between repo rate and reverse repo rate. (b) Outline and discuss the measure taken by the Monetary Policy Committee of Reserve Bank of India to control inflation.
Identify, which of the following is not a function of the Reserve Bank of India. (Choose the correct alternative)
If the central bank wants to reduce money supply in the economy, it may __________. (Choose the correct alternative to fill up the blank) (i) increase Bank Rate (ii) reduce Cash Reserve Ratio (iii) sell securities in the open market (iv) buy securities in the open market Alternatives :
Read the following information carefully : "The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI), recently increased the Repo Rate by 50 basis points. The Rate stands today at 5.40%, whereas Reverse Repo Rate was left unchanged at 3.35%." Answer the following questions : (i) Identify the nature of the two monetary policy measures mentioned in the above text. (ii) Elaborate the likely economic rationale behind the increase in Repo Rate by the Monetary Policy Committee. Suppose an imaginary economy is facing a situation of deficient demand in the short run time period. Discuss briefly, the probable impacts of the same on the economy.
Using a suitable numerical example, explain the credit creation process of the banking system, in a hypothetical economy.
The Reserve Bank of India (RBI) _________ government securities in a bid to _________ the stock of money in the economy. (Choose the correct alternative to fill up the blanks)
Read the following text carefully : "After setting up a working group to study the possibility of a Central Bank Digital Currency (CBDC) in India in 2020, the RBI revealed a concept note on digital rupee (e-Rupee) on 7th October, 2022." "The e-Rupee will provide an additional option to the currency available forms of money. It is substantially not different from bank notes, but being digital it is likely to be easier, faster and cheaper." RBI said that it broadly defines CBDC as the legal tender issued by a central bank in a digital form. It is akin to paper currency in a different form. On the basis of the above text and common understanding, answer the following questions : (a) Identify and discuss the function of central bank indicated in the above text. (b) State any two advantages of digital rupee.
The Reserve Bank of India (RBI) __________ government securities in a bid to __________ the stock of money in the economy. (Choose the correct alternative to fill up the blanks)
'Money is an asset which can be stored for use in future.' In the light of given statement, identify the function of money. (Choose the correct alternative)
As per the following news published in 'The Hindu' on 6th August, 2022 : 'The Monetary Policy Committee (MPC) of the Reserve Bank of India raised the Repo Rate by 50 basis points.' Identify and explain the likely cause and consequences behind this type of action taken by the Reserve Bank of India.
Explain the role of Central Bank as Governments' agent and advisor. Define Reverse Repo Rate. Discuss briefly, how this instrument helps in controlling credit creation by commercial banks.
Find the missing figures and choose the correct alternative : Alternatives :
Justify the following statements with valid arguments : (a) The Central Bank is the sole currency issuing authority of an economy. (b) Money serves as a measure of standard of deferred payments.
Read the following text carefully from ‘The Economic Times’ dated 8th June, 2023 : “The Reserve Bank of India’s (RBI’s) rate setting panel unanimously decided to keep the benchmark lending rate unchanged at 6.5%. The committee voted to remain focused on the withdrawal of accommodating monetary policy.” On the basis of given text and common understanding, answer the following questions : (a) Identify and discuss the economic issue indicated in the above text. (b) Discuss the likely consequence on money supply if the rate setting panel would have decreased the said rate.
Read the following statements carefully : Statement 1 : Money is a commodity which is generally accepted as a medium of exchange. Statement 2 : Money solved the problem of double coincidence of wants. In the light of the given statements, choose the correct alternative from the following :
Identify the incorrect statement with reference to Cash Reserve Ratio (CRR) :
Reserve Bank of India undertakes the important function of managing the government's banking transactions. Discuss the above stated function performed by the Reserve Bank of India.
"An increase in the credit creation capacity of commercial banks has a direct impact on the money supply in an economy." Discuss the given statement.
Read the following statements carefully : Statement 1 : Reserve ratio and Credit creation process are inversely related. Statement 2 : Central Bank of an economy performs the vital function of controlling the credit creation process. In light of the given statements, choose the correct alternative from the following :
Choose the correct alternative to complete the given schedule : Alternatives :
"Open market operations by Reserve Bank of India (RBI) help in regulating money supply in the economy." Justify the given statement with valid arguments. Elaborate the Government's Bank and Advisor function of the Central Bank of a nation.
"Open market operations by Reserve Bank of India (RBI) help in regulating money supply in the economy." Justify the given statement with valid arguments. Elaborate the "Bankers' Bank" function of the Central Bank of a nation.
Choose the correct alternative to complete the given schedule :
The Central Bank can reduce the Money Supply in the economy by ______ the ______. (Fill up the blanks with correct alternative.)
Elaborate the 'Banker's Bank and Supervisor' function of the Reserve Bank of India.
"Mr. Sahotra borrowed funds from bank for purchasing a new house". From the above statement, identify the indicated function of money :
If in an economy the initial deposits are Rs. 4,000 crore and Reserve Ratio (RR) is 10%. The value of total deposit created would be Rs. _____ crore. (Fill up the blank with correct alternative.)
"Open Market Operation by the Reserve Bank of India (RBI) helps in regulating money supply in the economy." Justify the given statement.
If in an economy the initial deposits are Rs. 4,000 crore and Reserve Ratio (RR) is 10%. The value of total deposit created would be Rs. ______ crore. (Fill up the blank with correct alternative.)
"Irfaan (a student) borrows Rs. 80,000 to finance his college fee. He plans to begin repaying the loan six months after his graduation, making payments over a span of ten years." Based on above text, identify the indicated function of money. (Choose the correct option)
In the context of the Commercial Banks, which of the following statements are correct ? (Choose the correct option) (I) Deposits received are liabilities for Commercial Banks. (II) They are creator of credit in the economy. (III) They accept deposits from general public. (IV) They accept deposits on behalf of Reserve Bank of India.
Suppose in an economy, primary deposits are Rs. 500, if the Reserve Ratio is 25%. Estimate the total deposits created and the total lending by the banking system.
Read the following text carefully : Union Food and Consumer Affairs Minister said that the Central Government has taken many proactive steps in the past few years to control retail prices of food items. He said that the government aims to keep inflation under control without compromising the country's economic growth. Retail inflation inched up to a three-month high of 5.55% in November 2023 driven by higher food prices. Inflation has been declining since August 2023, when it touched 6.83%. 140 new price monitoring centres had been set up by the Central Government to keep a close watch on wholesale and retail prices of essential commodities. The Government has banned the export of many food items like wheat, broken rice, non-basmati white rice, onions etc. It has also reduced import duties on edible oils and pulses to boost domestic supply and control price rise. On the basis of the given text and common understanding, answer the following questions : (a) Mention the number of new price monitoring centres set up by government. (b) State any two proactive measures taken by government to boost domestic supply and reduction in prices. (c) Explain any one monetary measure used to control inflation.
The monetary policy is formulated by the _____ in the Indian economy. (Choose the correct option to fill up the blank)
As the Banker to the Bank, Reserve Bank of India performs all functions except _____. (Choose the correct option to fill up the blank)
The monetary policy is formulated by the ____ in the Indian economy. (Choose the correct option to fill up the blank)
As the Banker to the Bank, Reserve Bank of India performs all functions except ____. (Choose the correct option to fill up the blank)
Read the following statements carefully : Statement 1 : The government may reduce the repo rate, to control deflationary gap prevailing in the economy. Statement 2 : The government may reduce the deflationary gap, by selling off government securities (G-Sec) in the open market. In the light of the given statements, choose the correct option from the following :
(a) Elaborate the process of Credit Creation using a suitable numerical example. (b) Read the following text carefully : "This function of money provides different items to be evaluated against a common standard. It allows comparison of prices and keeping financial records." (i) On the basis of the given text, identify the indicated function of money. (ii) List any other two functions of money.
Central Bank can decrease the money supply in the economy by ____________. (Choose the correct option to fill in the blank)
If the total credit created by the banks is Rs. 500 and Reserve Ratio is 20%, the value of primary deposits would be ____________. (Choose the correct option to fill in the blank)
"In the 1990s, on the advice of Reserve Bank of India (RBI), the Government of India took a decision of hypothecation of gold reserves to different nations." In the light of above statement, discuss briefly the role of Central Bank as Banker, Agent and Adviser to the Government.
If the total credit created by the banks is Rs. 500 and Reserve Ratio is 20%, the value of primary deposits would be _____________. (Choose the correct option to fill in the blank)
Central Bank can decrease the money supply in the economy by _____________. (Choose the correct option to fill in the blank)
Central Bank can decrease the money supply in the economy by ___________. (Choose the correct option to fill in the blank)
If the total credit created by the banks is Rs. 500 and Reserve Ratio is 20%, the value of primary deposits would be ___________. (Choose the correct option to fill in the blank)
Commercial banks are regarded as money creators because : (Choose the correct option)
Read the following statements carefully : Statement 1 : Open Market Operations refers to purchase/sale of Government Securities (G-Sec) by the Central Bank. Statement 2 : To decrease money supply, Central Bank will sell the Government Securities to commercial banks. In the light of the given statements, choose the correct option from the following :
Identify and explain any one function of Central Bank as indicated in the image given below : FUNCTIONS OF RESERVE BANK OF INDIA Explain any one function of Central Bank.
"Margin requirements are extremely helpful in correcting the situation of deflationary gap in an economy". Justify the given statement with valid arguments.
Identify and explain any one function of Central Bank as indicated in the image given below : Explain any one function of Central Bank.
In an imaginary economy, maintaining a Cash Reserve Ratio of 20% with primary deposits of Rs. 1,000, the total derivative deposits created by banks would be __________. (Choose the correct alternative to fill in the blank)
In what ways do alterations in margin requirements impact the ease with which households and firms can obtain credit ? Assuming for a hypothetical economy, government induces an additional investment of Rs. 1,000 crore and 80 percent of additional income is spent on consumption. Estimate the values of the following : (i) Investment multiplier (K) (ii) Change in income (DY)
Suppose in a hypothetical economy, reserve ratio changes from 10% to 20% and the value of primary deposits are Rs. 1,000 crore. Calculate the change in the amount of money creation when reserve ratio changes from 10% to 20%.
In an imaginary economy, maintaining a Cash Reserve Ratio of 20% with primary deposits of Rs. 1,000, the total derivative deposits created by banks would be Rs. __________. (Choose the correct alternative to fill in the blank)
Suppose for a hypothetical economy, reserve ratio changes from 20% to 25% and the value of primary deposits are Rs. 1,000 crore. Calculate the change in the amount of credit creation when reserve ratio changes from 20% to 25%.
Suppose for a hypothetical economy, reserve ratio changes from 10% to 20% and the value of primary deposits are Rs. 2,000 crore. Calculate the change in the amount of credit creation when reserve ratio changes from 10% to 20%.
Read the following statements : Assertion (A) and Reason (R). Choose the correct option from those given below : Assertion (A) : Money is of perishable nature and is generally accepted by all at any point of time. Reason (R) : Money serves as a store of value, facilitating individuals to transfer purchasing power from the present to the future.
"In the Indian Banking System, the Statutory Liquidity Ratio (SLR) plays a vital role in controlling the credit creation capacity of the Commercial Banks, as it __________." (Choose the correct option to fill in the blank)
"Under the provisions stated in the Section 20 and Section 21 of the Reserve Bank of India (RBI) Act, 1934, the RBI is mandated to handle the banking operations of the Government of India." In the light of the given statement, elaborate the indicated function of the Reserve Bank of India.
Refer the given image carefully : Explain any two measures that can be taken by the Central Bank to control the indicated macroeconomic problem. Note : The following question is for the Visually Impaired Candidates only in lieu of Q. No. 15. State and explain any two measures that can be taken by the Central Bank to control the situation of deficient demand.
Identify, which one of the following is not a function of Reserve Bank of India as a bank, agent and advisor to the government.
"When initial deposits in the credit creation process remains same, the total amount of credit created rises as the value of money multiplier increases." Defend or refute the above statement with the help of hypothetical numerical example. "The Central Bank maintains reserves of all commercial banks and use to settle interbank claims." Do you agree with the given statement ? Give valid explanation in support of your answer.
Read the following text carefully : "The Reserve Bank of India (RBI) announced a 50 basis point Repo Rate cut to 5.50% from 6%." In the light of the given text and common understanding, answer the following questions : (i) Identify the economic issue indicated in the above text. (ii) Explain the likely causes and consequences of this step of RBI on the economy.
"The Reserve Bank of India (RBI) has decided to increase the loan amount to 90% of the security value, from the prior rate of 80%." In the light of above statement, identify the type of monetary measure exercised by the Reserve Bank of India (RBI) and its likely impacts on the Aggregate Demand of the economy.
Read the following passage carefully : Any institution which accepts deposits from the public and advances loans is a bank. Banks are broadly categorised into : - Commercial Banks, and - Central Bank. Commercial banks accept deposits from public and use these deposits for giving loans. Banks keep a fraction of deposits as reserves. Generally, all depositors do not demand their money at the same time. The Central Bank of a country is responsible for controlling credit creation. The Reserve Bank of India (RBI) regulates the money supply in India through its monetary policy. On the basis of the above passage and common understanding, answer the following questions : (i) State the meaning of a Bank. (ii) Mention any two traits that distinguish Central Bank from Commercial Banks. (iii) "Open market operation is the tool used by Reserve Bank of India (RBI) to regulate money supply in the economy." Justify the given statement with valid arguments.
"The Reserve Bank of India (RBI) has decided to increase the loan amount to 80% of the security value, from the prior rate of 70%." In the light of the above statement, identify the type of monetary measure exercised by the Reserve Bank of India (RBI) and its likely impacts on the Aggregate Demand of the economy.
"The Reserve Bank of India (RBI) has decided to increase the loan amount to 90% of the security value, from the prior rate of 70%." In the light of the above statement, identify the type of monetary measure exercised by the Reserve Bank of India (RBI) and its likely impacts on the Aggregate Demand of an economy.
Suppose, a banking system received primary deposits of Rs. 1,000 and as a result commercial banks created credit worth Rs. 5,000. The value of Reserve Ratio in the given situation would be ___________ percent. (Choose the correct option to fill in the blank)
Reserve Bank of India (RBI) performs the function of Banker to the Banks by acting as a : (i) Clearing House (ii) Custodian of Cash Reserves (iii) Lender to the Government (iv) Periodic inspection of Banks
Read the following passage carefully : " The Reserve Bank of India (RBI) Governor announced a 50 basis points reduction in the Cash Reserve Ratio (CRR) to 4% during the Monetary Policy Committee (MPC) address on December 6. The Governor noted that this move reflects a balanced approach towards managing liquidity while ensuring economic stability." Based on the above passage and common understanding, answer the following questions : (i) Explain the rationale and the likely impact of the decision taken by the Monetary Policy Committee (MPC) of Reserve Bank of India (RBI). (ii) Define Cash Reserve Ratio (CRR).
Suppose, for a hypothetical economy, Reserve Ratio (RR) decreases from 25% to 20%, the total deposits would ___________ to Rs. ___________, if primary deposits are Rs. 1,000. (Choose the correct option to fill in the blanks)
Liabilities for any firm are its debt/what it owes to others. Contrary to that, for a bank ___________ are the main liability. (Choose the correct option to fill in the blank)
"Repo Rate and Bank Rate are two different measures, but a change in either of them may have the similar implication on the money supply in an economy." Defend or refute the given statement, giving valid explanation in support of your answer. "The Reserve Bank of India (RBI) is the sole authority for issuing currency notes in India, with an exception of Rs. 1 denomination that is issued by the Ministry of Finance." Do you agree with the given statement ? Explain the rationale behind the monopoly enjoyed by the Reserve Bank of India (RBI) on this front.
Read the following text carefully : "With an objective to improve the growth momentum by stimulating domestic private consumption and investment, the Reserve Bank of India (RBI) announced a reduction in Cash Reserve Ratio (CRR) by 100 basis points (1%)." Based on the above text and common understanding, answer the following questions : (i) Explain the likely cause behind the step taken by the Reserve Bank of India (RBI). (ii) Briefly explain the impact of the step taken by the Reserve Bank of India (RBI) on the Aggregate Demand (AD).
Suppose, for a hypothetical economy, Reserve Ratio (RR) decreases from 25% to 20%, the total deposits would ___________ to ___________, if primary deposits are Rs. 1,000. (Choose the correct option to fill in the blanks)
Find the missing figures and choose the correct alternative : Alternatives : Round | Deposits | Loans (80%) | Reserve Ratio (20%) I | 5000 | 4000 | ..(i).. II | 4000 | ..(ii).. | 800 ... | ... | ... | ... ... | ... | ... | ... Total | ..(iii).. | ..(iv).. | 5000
Choose the correct alternative to complete the given schedule : Alternatives : Round | Deposits | Loans (90%) | Reserve Ratio (10%) I | 2000 | 1800 | 200 II | ...(i)... | ...(ii)... | 180 ... | ... | ... | ... ... | ... | ... | ... Total | ...(iii)... | ...(iv)... | 2000
Choose the correct alternative to complete the given schedule : Round | Deposits | Loans (90%) | Reserve Ratio (10%) I | 2000 | 1800 | 200 II | ...(i)... | ...(ii)... | 180 ... | ... | ... | ... ... | ... | ... | ... Total | ...(iii)... | ...(iv)... | 2000