Result Oriented SSC & Bank Exam Preparation Tips: UNIT VI MCQS FOR ECONOMICS PAPER III UGC

Unit-VI

Components of money supply

Role, constituents and functions of money and capital markets

RBI – recent monetary and credit policies

Commercial banks and co-operative banks

Specialized financial and investment institutions

Non-Bank financial institutions and Regional Rural Banks

1. Which of the following bank is going to be merged at first with SBI ?
(A) State Bank of Saurashtra
(B) State Bank of Indore
(C) State Bank of Patiala
(D) State Bank of Bikaner and Jaipur
Ans : (A)

2. ‘BANCON-2007’ was hosted by—
(A) Bank of Baroda
(B) Punjab National Bank
(C) Bank of India
(D) Central Bank of India
Ans : (A)

3. ‘Pure Banking, Nothing Else’ is a slogan raised by—
(A) ICICI Bank
(B) HDFC Bank
(C) SBI
(D) UTI Bank
Ans : (C)

4. RBI has raised CRR w.e.f. April 21, 2010 at—
(A) 6•00%
(B) 5•50%
(C) 5•25%
(D) 5•0%
Ans : (A)

5. Deficit financing increases—
(A) Rate of money inflation
(B) Rate of money deflation
(C) Rate of devaluation
(D) All of the above
Ans : (A)

6. Which is not a monetary measure to control inflation ?
(A) Soft loan policy
(B) Hard credit policy
(C) Tight the regulation of money issue
(D) To reduce the quantity of money
Ans : (A)

7. Which is the monetary measure to control inflation ?
(A) Increase in taxation
(B) Decrease in taxation
(C) Soft credit policy
(D) Hard credit policy
Ans : (D)

8. Selling of securities in the open market by the central bank creates—
(A) Inflation
(B) Deflation
(C) Both of above
(D) None of the above
Ans : (B)

9. To control inflation the central bank should do—
(A) To sell government securities and to decrease bank rate
(B) To sell government securities and to increase bank rate
(C) To purchase government securities and to increase bank rate
(D) To purchase government securities and to decrease bank rate
Ans : (B)

10. Which of the rate is not determined by Reserve Bank of India ?
(A) Bank Rate
(B) CRR
(C) SLR
(D) PLR
Ans : (D)

11. 11th Plan Draft Document as approved by Planning Commission presents a target of 4% annual growth for agriculture. For industry and service sector growth rate has been targeted between—
(A) 7 to 9%
(B) 8 to 10%
(C) 9 to 11%
(D) 10 to 15%
Ans : (C)

12. Fiscal Deficit means—
(A) Public Expenditure—Debts froms sources other than RBI
(B) Public Capital Expenditure—Surplus of Revenue Account
(C) Govt. Expenditure—Revenue receipts
(D) Public Expenditure—Tax and non-tax revenue receipts
Ans : (D)

13.The Repo rate w.e.f. March 4, 2009 stands at—
(A) 5·5%
(B) 5·0%
(C) 4·5%
(D) 4·0%

Answer (B)

14. As per RBI released data; India’s foreign exchange reserves on January 2, 2009 stands at—
(A) $ 247·68 billion
(B) $ 254·64 billion
(C) $ 255·24 billion
(D) $ 258·34 billion

Answer :(C)

15. SEBI is a—
(A) Statutory body
(B) Advisory body
(C) Constitutional body
(D) Non-statutory body

Answer (A)

16. In Forbes’ list “Billionaire Blowup of 2008”, which of the following has been identified as the biggest loser of 2008 in the world ?
(A) Bill Gates
(B) Anil Ambani
(C) Laxmi Mittal
(D) Mukesh Ambani
Answer (B)

17. Tarapore Committee submitted its report on “Full Convertibility on Rupee” in—
(A) Current account
(B) Capital account
(C) Both in current as well as in capital account
(D) Special Drawing Rights (SDR)
Answer. (B)

18. During the second quarter of 2008-09, i.e., July-September 2008, India’s current account deficit stood at—
(A) $ 4·297 billion
(B) $ 6·297 billion
(C) $ 9·538 billion
(D) $ 12·538 billion
Answers : (D)

19. Asian Development Bank has approved an additional $ 71 million loan to the water project associated with the state—
(A) Uttar Pradesh
(B) Madhya Pradesh
(C) Rajasthan
(D) Gujarat
Answers :. (B

20. Which State of the following has adopted VAT (Value Added Tax) w.e.f. January 1, 2007 ?
(A) Tamil Nadu
(B) Uttar Pradesh
(C) Gujarat
(D) Goa

Answers : . (A

21. CCEA (Cabinet Committee on Economic Affairs) has decided to allow ‘Navratna’ and ‘Mini
Ratna’ companies to invest in mutual funds upto……per cent of their cash balances.
(A) 25%
(B) 30%
(C) 40%
(D) 50%

Answer (A)

22. NABARD was established on the recommendation of—
(A) Public Account Committee
(B) Shivaraman Committee
(C) Narsimham Committee
(D) None of these

Answers :(B)

23. The law of diminishing (marginal) returns states that as more of a variable factor is added to a certain amount of a fixed factor, beyond some point:
a. Total physical product begins to fall
b. The marginal physical product rises
c. The marginal physical product falls
d. The average physical product falls

Ans. a

24. Why is the law of diminishing marginal returns true?
a. specialization and division of labor
b. spreading the average fixed cost
c. limited capital
d. all factors being variable in the long-run

Ans. c

25. Bank rate in India is determined
by-
(A) Government
(B) Commercial Banks
(C) Reserve Bank of India
(D) Cooperative Banks

Answer.C

26. Suppose money income in the
year 2000 was 5 lakh, which
increased 10 lakh in the year
2008. But during the same
period, there was a price
increase of 20 per cent. Then
increase in real income was-
(A) 8-33 lakh
(B) 363 lakh
(C) 51akh ,
(D) None of these

Answer.A

27. Central Bank in India is-
(A) Central Bank of India
(B) State Bank of India
(C) Bank of India
(D) Reserve Bank of India

Answer.D

28. Inflation means-
(A) When the prices of necessities increase
(B) When the general price
increases for a long period
(C) When there is a seasonal
fluctuation in prices
(D) When the prices of luxuries
increase

Answer.B

29. Speculative Demand for moneyand Interest rate are related—
(A) Inverse relationship
(B) Direct relationship
(C) No relationship in these
(D) None of these

Answer.A

30, When the demand for money increases for investment-
(A) Will decrease the multiplier effect
(B) Adversely affect the consumption
(C) Interest rate will remain unchanged
(D) The increase in interest rate will depend upon the slope of investment curve

Answer.D

31. Disinflation means—
(A) When increase in prices in the long run
(B) When the prices increase due to export
(C) When the increase in prices is more than average
(D) When increased prices decrease

Answer.D

32. Transaction demand curve for money—
(A) It is parallel to X—axis
(B) It moves upward with income
(C) It moves downward
(D) None of these

Answer.B

33, Devaluation of money means—
(A) Decrease in purchasing power of money
(B) Increase in purchasing power of money
(C) Decrease in external value of money
(D) None of the above

Answer.C

34. Money supply could be increased when-
(A) Central Bank purchases government securities
(B) Central Bank sells government securities
(C) Cash-reserve ratio of banks is increased
(D) Commercial Banks increase the amount deposited with Central Bank

Answer.A

35. Bankers’ Bank in India is-
(A) International Monetary Fund
(B) World Bank
(C) Industrial Development Bank of India
(D) Reserve Bank of India

Answer.D

36. ln spite of present depression, there has been no bank failures in India like other countries.
Which of the following reasons is wrong ?
(A) These are less controlled by the Reserve Bank
(B) Invested in risk free government securities
(C) Examines the credit rating of the borrower
(D) The share of public sector banks in the banking sector is less •

Answer.A

37. Which of the following is meant by growth in the context of growth and development?
a. Growth of gross national product in money terms
b. Growth of per capita income in money terms
c. growth of gross national product in real terms
d. Growth of per capita income in real terms
Ans. a

38. Who developed the Time Preference Theory of Interest?
a. Irving Fisher
b. N. Senior
c. J. R. Hicks
d. J. M. Keynes

Ans. a

39. Which one of the following is the most important determinant of speculative demand for money?
a. Income
b. Interest rate
c. Profits
d. Prices

Ans. a

40. Which one of the following equations was used by Fischer to explain the Quantity Theory of Money? (Symbols have their usual meanings)
a. MVPT
b. MP’=VT
c. MP’PT
d. PVMT

Ans. a

41. If Y is the total money income of the community, M is the supply and P is the price level, then how is Vy (the income velocity of money) defined as?
a. Vy = M/Y
b. Vy = Y/M
c. Vy = Y/(MP)
d. Vy = PY/M

Ans. a

42. When shall an increase in money supply have a small effect on nominal Gross Domestic Product?
a. If the velocity is decreasing
b. If the velocity is unchanged
c. If the velocity is increasing
d. If the Government’s spending is also increasing

Ans. c

43. Which one of the following statements is correct?
J.M. Keynes assumed that supply of money as a function of rate of interest is
a. perfectly elastic
b. highly elastic
c. unitary elastic
d. perfectly inelastic

Ans. c

44. What are the sufficient conditions for operation of stage theories of growth?

1. Well-integrated commodity and money markets.

2. Highly developed transport facilities

3. Well-trained workforce and an efficient bureaucracy

4. Existence of a federal structure.

Select the correct answer by using the codes given below

(a) 1, 2, and 4

(b) 2, 3, and 4

Ans. (d)

45. Consider the following statements for Indian Millennium Deposits (IMDs) scheme.

1. The scheme was launched by the Reserve Bank of India.

2. It was intended for NRIs and resident Indians both.

3. The tenure of IMDs was 5 years.

Which of the statements given above is/are correct?

(a) 3 only

(b) 2 only

(d) 2 and 3

Ans. (a)

46. What does Hedging mean ?

(A) The acceptance of a foreign exchange risk.

(B) The covering of a foreign exchange risk.

(D) Foreign exchange arbitrage.

Ans. a

47. An agreement between two countries to maintain a free trade area, a common external tariff, free mobility of capital and labour and degree of unification in government policies and monetary policy is called

(A) Common market

(B) Free trade area

(D) Customs union

Ans. c

48. The core principles of multi lateral trading system are :

I. Non-Discrimination

II. Reciprocity

III. Protectionism

IV. Domestic Safeguards

Select the right code from the list given below :

(A) I, II and IV are correct.

(B) II and III are correct.

(D) I and II are correct.

Ans. a

49. In which terms a unit of SDR was originally denominated ?

(A) The world marked value of U.S. Dollar

(B) The gold value equivalent of one US Dollar

(D) The German Mark

Ans. a

50. Which of the following is an adverse effect of Euro Currency Market ?

(A) International Capital Market

(B) Decrease in World’s Nominal Money Supply

(D) Meeting BOP Deficit

Ans. c

51. According to Weber’s Theory of Location, the important factors influencing location are

1. Transport Cost

2. Land Cost

3. Labour Cost

4. Innovation Cost

Choose the correct code :

(A) 1 & 2 (B) 2 & 3

Ans. d

52. Gross fiscal deficit of the State Governments is financed by

I. Market Borrowings

II. Printing of Currency

III. Loans from the Central

Government

IV. External Borrowings

Find the correct answer from the

given code :

Codes :

(A) I, II and III are correct.

(B) II, III and IV are correct.

(D) II and IV are correct.

Ans. c

53. Assertion (A) : During the financial year 2011-12, the Central Government is not likely to achieve the target of raising ` 40,000 crores through disinvestment policy.

Reason (R) : Policy of increased public borrowings to bridge the fiscal gap is justified. In the context of the above two statements, which one is correct from the given ?

Codes :

(A) Both (A) and (R) are correct and (R) is the correct explanation of (A).

(B) Both (A) and (R) are correct but (R) is not the correct explanation of (A).

(D) (R) is correct but (A) is incorrect.

Ans. c

54. In the equation C = C0 + C1 Yd, where C is planned consumption expenditure, Yd is disposable income, C0 is intercept or autonomous consumption (value of C when disposable income is zero), and C1 is marginal propensity to consume; which of the following is the endogenous variable ?

(A) C0

(B) C1

(D) None of the above

Ans. c

55. Match the statements given in Group – A with their propounders in Group – B :

Group – A (Statements) Group – B (Propounders)

i. Velocity of money is a stable function

of its determinants. 1. Keynesians

ii. Velocity of money is an unstable function of its

determinants. 2. Monetarists

iii. Velocity of money is a constant, and does not depend

on income and interest rate. 3. Classicals

Choose the correct code :

Codes :

i ii iii

(A) 2 3 1

(B) 1 2 3

(D) 3 2 1

Ans. c

56. Which of the following statement is false ?

(A) In dynamic multiplier, there is lagged relationship between consumption and disposable income.

(B) The dynamic multiplier process can be presented as a decreasing geometric series of change in income in the following period.

(C) A major portion of the multiplier effect is realized in fewer periods when the marginal propensity to consume is smaller.

(D) A major portion of the multiplier effect is realized in fewer periods when the marginal propensity to consume is larger.

Ans. d

57. Suppose the money supply and the price level are constant, and the demand for money is a function of income and interest rate. When the income level increases, there is

(A) an increase in the quantity of money demanded and an increase in the rate of interest.

(B) an increase in the quantity of money demanded and a decrease in the rate of interest.

(D) a decrease in the quantity of money demanded and an increase in the rate of interest

Ans. c

58. Identify sources of agricultural credit in India from the code given below :

1. Commercial Banks

2. Money Lender

3. Regional Rural Bank

4. Small Industries Development

Bank of India

Codes :

(A) 1, 2 and 3

(B) 2, 3 and 4

(D) 1, 2, 3 and 4

Ans. c

59. High powered money comprises

(A) Currency held by the public +

Cash reserves of banks

(B) Currency held by the public +

Demand and time deposits +

Cash reserves of banks

Cash reserves of banks + Other

deposits of RBI

(D) Currency held by the public +

other deposits of RBI

Ans c

60. Productivity of Indian agriculture can

be enhanced by

1. Increased public investment

2. Increased irrigation facilities

3. Higher support price to the

farmers

4. Shifting workers from industry

to agriculture

Select the correct answer from the

given codes :

Codes :

(A) 1, 2 and 4

(B) 1, 2 and 3

(D) 3, 4 and 1

Ans. a

61 Which of the following financial

institutions are operating in the

money market ?

1. Non-banking financial

institutions

2. Acceptance Houses

3. Central Bank

4. Stock Exchanges

Select the correct answer from the

given codes :

Codes :

(A) 2 and 3

(B) 1 and 3

(D) 1, 2 and 3

Ans. d

62. Assertion (A) : The capital base of

regional rural banks (RRBs) is

found to be weak.

Reason (R) : Deposit mobilization

of RRBs has been inadequate.

From the above two statements,

select the correct answer from the

given codes.

Codes :

(A) Both (A) and (R) are correct

and (R) is the correct

explanation of (A).

(B) Both (A) and (R) are correct

but (R) is not the correct

explanation of (A).

(D) (A) is true but (R) is false.

Ans. c

63. In dual gap model, the gap can be

filled up by

(A) Raising the level of saving

(B) Export promotion

(D) Foreign aid

Ans. c

64. The concept of ‘learning by doing’

was given by

(A) J.R. Hicks

(B) Kenneth Arrow

(D) Nicholas Kaldor

Ans. a

65. Which of the following is broad

money (M3

) in India ?

(A) Currency with public + demand

deposits in the banks

(B) Currency + demand deposits +

other deposits with RBI

time deposits

(D) Currency + demand deposits +

time deposits + other deposits

with RBI

Ans. d

66. In Joan Robinson’s growth model,

capital accumulation depends on

(A) Saving-income ratio

(B) Profit-wage relation and labour

productivity

(D) Saving-investment ratio

Ans. d

67. Which of the following is the most

significant in stabilization policy ?

(A) Private investment

(B) Inventory investment

(D) Public investment

Ans. d

68. Assertion (A) : Investment has a

demand effect.

Reason (R) : Investment augments the

productivity and income in the

economy.

Codes :

(A) Both (A) and (R) are correct and

(R) is the correct explanation of

(A).

(B) Both (A) and (R) are correct, but

(R) is not the correct explanation

of (A).

(D) (A) is incorrect and (R) is correct

Ans. c

69. List – I List – II

a. Monetary Policy 1. Tax Rate

b. Trade Policy 2. Margin Money

c. Credit Policy 3. Imports and Exports

d. Fiscal Policy 4. Bank Rate

Codes :

a b c d

(A) 4 3 2 1

(B) 4 2 3 1

(D) 2 1 4 3

Ans. b

70. Which of the following statements

does not hold true in case of the

Keynesian Economics ?

(A) Velocity of money is an

unstable function of its

determinants.

(B) Labour is subject to money

illusion.

tends to become flat at levels

of output well below full

employment and to become

steeper as full capacity is

reached.

(D) Aggregate supply schedule is

vertical, and output and

employment are completely

supply determined.

Ans. c

71. Tobin’s q-theory of investment

indicates that firms add to their stock

of capital when

(A) the replacement value of their

real assets exceeds the market

value of their financial assets.

(B) the market value of their

financial assets exceeds the

replacement value of their real

assets.

assets exceeds the book value

of their financial assets.

(D) the market value of their

financial assets exceeds the

book value of their real assets.

Ans. b

72. Since March 2010, how many times

the Reserve Bank of India has

increased the repo rate ?

(A) Eleven times

(B) Thirteen times

(D) Twelve times

Ans. c

73. Suppose there is full employment

and vertical aggregate supply

schedule. An increase in the nominal

money supply

(A) reduces the rate of interest and

changes the composition of

output

(B) causes a proportional increase

in real output

supply or the composition of

output

(D) causes the real money supply

to increase, which changes

composition of output

Ans. c

74. In the context of the MundellFleming model of open economy,

consider the following variables that

shift the IS function.

1. a rise in the exchange rate

2. an increase in foreign income

3. a cut in taxes

4. a fall in exchange rate

Ans. a

75. Which of the following

combinations of these factors shift

the IS function upwards towards the

right ?

(A) 1, 2, 4 (B) 2, 3, 4

Ans. c

76. Which one of the following States

had the highest number of branches

of Regional Rural Branches (RRBs)

in 2010 ?

(A) Bihar

(B) Haryana

(D) Punjab

Ans. b

77. Assertion (A) : The working of

Regional Rural Banks (RRBs)

revealed that they eroded their

capital base.

Reason (R) : Many RRBs are nonviable and having high

operating costs.

Of the above two statements, give

the correct answer from the given

codes :

Codes :

(A) Both (A) and (R) are correct

and (R) is the correct

explanation of (A).

(B) Both (A) and (R) are correct,

but (R) is not the correct

explanation of (A).

(D) ((A) is false, but (R) is true.

Ans. c

78. According to the monetarists, money

supply constitutes

(A) Currency + demand deposits

(B) Currency + demand deposits +

time deposits

time deposits + equity shares

(D) Currency + all kinds of bank

deposits + deposits with other

institutions + borrowing

Ans. a

79. Which of the following is not a

specialized sub market of the money

market ?

(A) Collateral loan market

(B) Discount market

(D) Acceptance market

Ans. c

80. Which of the following institutions

are regulated by the RBI as All India

Financial Institution ?

I. Export Import Bank of India

II. National Housing Bank

III. State Bank of India

IV. Small Industries Development

Bank of India

Select the correct answer from the

given code :

Codes :

(A) I, II and IV

(B) II, III, IV

(D) III & IV

Ans a

81 A Kisan Credit Card (KCC) Scheme

was introduced in the year

(A) 2001 (B) 2005

Ans. c

82. Match the items of List – I with

items of List – II from the given

code :

List – I List – II

I. Law of increasing State

activities 1. R.N. Bhargava

II. Displacement effect 2. Adolph Wagner

III. Federal Finance 3. Weisman and Peacock

IV. Functional Finance 4. A.P. Lerner

Codes :

I II III IV

(A) 1 2 3 4

(B) 2 3 1 4

(D) 4 1 3 2

Ans. c

83. The apex financial institution

responsible for the development of

small and micro industries in India is

(A) IDBI

(B) SIDBI

(D) None of the above

Ans. b

84. Given below are the various

combinations giving the steps of

industrial development. Select the

correct sequential combination of

steps.

(A) Monetary expansion; industrial

development; fall of interest;

investment is stimulated.

(B) Industrial development; fall of

interest; monetary expansion;

investment is stimulated.

interest; investment is stimulated;

industrial development.

(D) Industrial development; fall of

interest; monetary expansion;

investment is stimulated

Ans. c

85. Match ‘SEBI’ with the appropriate

item among the following :

(A) Regulation of Money market

(B) Regulation of Capital market

market

(D) All the above

Ans. d

86. The act of simultaneously buying a

currency in one market and selling in

another market is called

(A) Speculation

(B) Spotting

(D) Arbitrage

Ans. d

87. Full employment and balance of

payments equilibrium will be

automatically achieved in an

optimum currency area

(A) if exchange rates are flexible

(B) foreign capital flows into the

country

freely

(D) if trade is liberalized

Ans. d

88. Assertion (A) : The new

endogeneous growth theory

examines production function

that shows increasing returns.

Reason (R) : Because of

specialization and investment

in knowledge capital.

(A) (A) is true, but (R) is false.

(B) (R) is true, but (A) is false.

but (R) is not the correct

explanation of (A).

(D) Both (A) and (R) are correct

and (R) is the correct

explanation of (A)

Ans. d

89. In Keynesian system speculative

demand for money arises because of

I. Uncertainty of future interest rates

II. Unexpected expenditures

III. To bridge the gap between income

and eventual expenditure

IV. Relationship between changes in

the interest rates and bond prices

Codes :

(A) I and III are correct.

(B) I and IV are correct.

(D) III and IV are correct.

Ans. c

90. According to Milton Friedman Theory

of permanent component of

consumption-expenditure depends on

I. Transitory income alone

II. Transitory and permanent income

III. Permanent income alone

IV. Windfall gains

Codes :

(A) I and II are correct.

(B) I and III are correct.

(D) Only III is correct.

Ans. d

91. The sequencing process of Schumpeter

model of development is

(A) Swarm like Clusters, Innovation,

Bank credit, Breaking circular flow

(B) Breaking circular flow,

Innovation, Bank credit, Swarm

like Clusters

Breaking circular flow, Swarm

like Clusters

(D) Bank credit, Innovation, Swarm like

Clusters, Breaking circular flow

Ans. d

92. Arrange the following theories in order

in which they appeared :

I. Comparative Cost Advantage Theory

II. Absolute Cost Advantage Theory

III. Leontief Paradox

IV. Factor Endowment Theory

Codes :

(A) I, III, II, IV (B) II, III, IV, I

Ans. d

93. Arrange the stages of economic growth

in a sequential order :

I. The age of high mass consumption

II. The traditional society

III. The take-off stage

IV. The drive to maturity

Codes :

(A) I, III, IV, II (B) II, IV, I, III

Ans. c

94. List – I List – II

I. National Agricultural Policy 1. 2004

II. Marine Fishing Policy 2. 1978

III. New Foreign Trade Policy 3. 2000

IV. Seventh Finance Commission 4. 2004

Codes :

I II III IV

(A) 2 1 3 4

(B) 4 3 1 2

(D) 3 1 4 2

Ans. d

95. List – I List – II

I. GATT 1. Managing balance of payments

II. IMF 2. Developmental Finance

III. IBRD 3. Free Trade

IV. UNO 4. Maintenance of peace among nations

Codes :

I II III IV

(A) 2 1 4 3

(B) 3 1 2 4

(D) 4 1 3 2

Ans. d

96. List – I List – II

I. Adam Smith 1. Availability doctrine

II. David Ricardo 2. Factors endowment

III. Ohlin 3. Absolute advantage

IV. I.B. Kravis 4. Comparative advantage

Codes :

I II III IV

(A) 1 2 3 4

(B) 3 4 2 1

(D) 4 3 1 2

Ans d

97. Global 2008 financial crisis was

created by

(A) Nationalised Banks

(B) Sub-prime Market lending

(D) Interest rate mechanism

Ans. c

98. Dr. Y.V. Reddy was

(A) Chairman, UTI

(B) Chairman, IDBI

(D) Chairman, LIC

Ans. c

99. A term financial liberalisation is

concerned with

(A) Control by the RBI

(B) Decontrol and Deregulation of

financial system in an

economy

structure

(D) Asset-liability efficient

management of nationalised

bank

Ans. d

100. According to Milton Friedman,

Quantity Theory of Money deals

with

(A) Prices

(B) Income

(D) Demand for Money

Ans. d

Result Oriented SSC & Bank Exam Preparation Tips

Tuesday, April 16, 2013

UNIT VI MCQS FOR ECONOMICS PAPER III UGC

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