Chapter 3 Quiz: Money and Economy

1. Which of the following characteristics is essential for money to effectively serve as a "Medium of Exchange"?

a) Its intrinsic value as a commodity. b) Its ability to be easily divisible into smaller units. c) Its general acceptance by people as a form of payment. d) Its capacity to earn interest over time.

2. Match the RBI's function with its corresponding credit control measure and its intended effect on the economy.

Column A (Function): I. Controlling Supply of Money and Credit
Column B (Measure): P. Repo Rate Increase
Column C (Effect): X. Reduces bank lending and money supply

a) I - P - X b) I - P - Y (Y = Increases bank lending) c) II - Q - X (II = Bankers' Bank, Q = CRR) d) III - R - Y (III = Government's Bank, R = Reverse Repo)

3. Read the Assertion (A) and Reason (R) carefully.
Assertion (A): Nationalization of banks was a significant step taken by the Indian government towards achieving financial inclusion.
Reason (R): It led to the expansion of banking services in rural areas and ensured equitable credit distribution.

a) Both A and R are true, and R is the correct explanation of A. b) Both A and R are true, but R is not the correct explanation of A. c) A is true, but R is false. d) A is false, but R is true.

4. Arrange the following events related to the Reserve Bank of India in chronological order from earliest to latest:

I. RBI was nationalised.
II. RBI was established.
III. The Consumer Protection Act 2019 replaced the 1986 Act.

a) II, I, III b) I, II, III c) III, II, I d) II, III, I

5. In the context of "Sources of Credit," what is the primary distinction between Formal and Informal sources?

a) Formal sources provide loans only to businesses, while informal sources lend to individuals. b) Formal sources are regulated by institutional bodies, whereas informal sources are largely unorganised and unregulated. c) Informal sources always charge lower interest rates compared to formal sources. d) Formal sources primarily focus on rural areas, while informal sources are prevalent in urban areas.

6. If the Reserve Bank of India (RBI) decides to increase the Cash Reserve Ratio (CRR), what is the most likely intended outcome?

a) To encourage commercial banks to lend more money to the public. b) To increase the overall money supply in the economy. c) To reduce the funds available with commercial banks for lending, thereby controlling credit. d) To lower the interest rates on loans offered by commercial banks.

7. Consider the following statements regarding types of deposits offered by Commercial Banks:
I. Savings Deposits typically offer a low interest rate but allow flexible withdrawals.
II. Current Deposits are mainly for businesses, have no transaction limits, and usually offer high interest.
III. Term/Fixed Deposits provide higher interest rates for a fixed period, with limited withdrawal flexibility.

a) I and II only b) II and III only c) I and III only d) I, II, and III

8. The statement "Money allows individuals to save their wealth or the value of goods (even perishable ones) over time for future use, unlike in the barter system" best describes which function of money?

a) Medium of Exchange b) Measure of Value c) Store of Value d) Means of Deferred Payments

9. Which of the following initiatives are direct steps taken by the Indian government to promote "Financial Inclusion"?
I. Nationalization of Banks
II. Promoting Jan Dhan Accounts
III. Launching the Goods and Services Tax (GST)
IV. Supporting Microfinance institutions like Kudumbashree

a) I, II, and III only b) I, II, and IV only c) II, III, and IV only d) I, II, III, and IV

10. Non-Banking Financial Institutions (NBFIs) are described as operating in the financial sector but performing only *some* banking functions. What is a key reason they are not considered full-fledged commercial banks?

a) They cannot offer loans to individuals. b) They do not generate income from the difference between interest charged and paid. c) They cannot accept savings deposits or allow cheque withdrawals. d) They are not regulated by any government body.