PRACTICE TEST SERIES CLASS 12 (2023-2024)

Test 02 | Macro | Money and Banking | Unit-II

Time allowed: 1.5 hours Maximum Marks: 40

General instructions:
 This paper contains 10 Multiple Choice Questions type questions of 1 mark each.
 This paper contains 2 Short Answer Questions type questions of 3 marks each to be
answered in 60 to 80 words.
 This paper contains 3 Short Answer Questions type questions of 4 marks each to be
answered in 80 to 100 words.
 This paper contains 2 Long Answer Questions type question of 6 marks to be
answered in 100 to 150 words.

Q. Questions Marks
No.
1 Ms. Iqra Ansari, a teacher, was explaining in her class about various types of 1
deposits with the commercial banks. She quoted that- "These deposits form a part
of measure of money supply and are payable on demand by the commercial
banks."
Identify the type of deposits she was explaining about and choose the correct
alternative:
(i) Demand Deposits
(ii) Time Deposits
(iii) Post Office Deposits
(a) Only (i) (b) Only (ii)
(c) (i) and (ii) (d) (i), (ii) and (iii)
2 Read the following news report carefully: 1
“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.
(a) Issue of currency (b) Banker to the public
(c) Banker to the Government (d) Banker’s Bank
3. Money supply in India may increase if, 1
(Choose the correct alternative)
1. Reserve Bank of India(RBI) injects more money into circulation
2. Commercial banks expand their credit operation
3. Tax rates are reduced by the Central Government
4. Reserve Bank of India increases the Bank Rate
Alternatives:
(a) 1, 2, and 3 are correct (b) 2, 3, and 4 are correct
(c) 1, 3, and 4 are correct (d) 1, 2, and 4 are correct

4. If the total deposits created by commercial banks are ₹12,000 and the LRR is 1
25%, calculate the initial deposit.
(a) 5000 (b) 3000 (c) 12000 (d) 4000
5. Match the statements given under A with the correct options given under B. 1
Column – A Column – B
(i) Repo Rate A – Rate of interest payable to commercial banks on
their surplus deposits with RBI
(ii) Reverse Repo Rate B – Rate of interest at which RBI provides short term
credit to commercial banks
(iii) Bank Rate C – Policy of the Central Bank
(iv) Monetary Policy D – Rate of interest at which RBI lends money to
Commerical Banks for long period.
Options
(a) (i) – A ; (ii) – B ; (iii) – C ; (iv) – D
(b) (i) – B ; (ii) – A ; (iii) – D ; (iv) – C
(c) (i) – A ; (ii) – B ; (iii) – D ; (iv) – C
(d) (i) – B ; (ii) – A ; (iii) – C ; (iv) – D
6. Match the following 1
Column – A Column – B
(i) 1/LRR A Creation of demand deposit with the help
of initial deposit
(ii) Margin requirement B Currency + Demand deposit + Other
deposit
(iii) Credit creation C Difference between value of security and
loan granted against it
(iv) Money supply D Money Multiplier
Options
(a) (i) – D ; (ii) – C ; (iii) – B ; (iv) – A
(b) (i) – C ; (ii) – D ; (iii) – A ; (iv) – B
(c) (i) – D ; (ii) – C ; (iii) – A ; (iv) – B
(d) (i) – B ; (ii) – A ; (iii) – D ; (iv) – C
7 Find the missing figures and choose the correct alternative: 1
Round Deposits Loans (80%) Reserve Ratio (20%)
I 1,000 800 200
II 800 ...(i)... 160

Total ...(ii)... ...(iii)... ...(iv)...

Alternatives:
(a) 640, 1000, 4000, 5000
(b) 960, 5000, 4000, 1000
(c) 640, 4000, 1000, 5000
(d) 640, 5000, 4000, 1000

8 A bank ‘run’ occurs when a large number of customers of a bank withdraw their 1
deposits simultaneously. This can cause a bank to become insolvent if they
cannot pay back all the depositors. Which of the following facts about a bank
make a bank run possible?
(a) Bank holds only about 15% of their deposits as cash. The rest of the deposits
are given out as loans.
(b) Banks have to pay a specific amount to the person in whose name a cheque
 has been issued.
(c) Banks charge a higher interest rate on loans than what they offer on deposits.
(d) Banks pay an amount to account holders as interest on deposits.
9 Read the following statements carefully and choose the correct alternatives given 1
below:
Statement 1 – The value of money multiplier is determined by the reserve ratio
prevailing in the monetary system.
Statement 2 – The process of credit creation directly relates to the value of
reserve ratio.
Alternatives:
(a) Both the statements are true.
(b) Both the statements are false.
(c) Statement 1 is true and Statement 2 is false
(d) Statement 2 is true and Statement 1 is false
10 “This function has made possible keeping accounts and the emergence of the 1
banking system”. In the light of given statement, identify the function of money.
(Choose the correct alternative)
(a) Medium of exchange (b) Store of value
(c) Standard of deferred payments (d) Measure of value
11 RBI lowers the repo rate from 5.40% to 5.15%. Analyze the economic value of 3
this statement from the view point of :
(i) the households, (ii) investors, and (iii) the economy.
12 Read the following case study paragraph carefully and answer the questions on 3
the basis of the same.
The Reserve Bank of India raised inflation forecasts on the back of higher oil and
other raw materials while it maintained the growth forecast at 9.5% for FY22
despite anemic investment demand. Governor Shaktikanta Das said inflation
measured by the consumer price index (CPI) might remain close to the upper
tolerance band of 6% up to September expecting easing of pressure thereafter on
kharif harvest arrivals. [RBI has fixed inflation rate target in between 2%-6 %.]
The central bank projected CPI at 5.7% for FY22 compared to its earlier
projection of 5.1%. “The supply-side drivers could be transitory while demand-
pull pressures remain inert, given the slack in the economy. A pre-emptive
monetary policy response at this stage may kill the nascent and hesitant recovery
that is trying to secure a foothold in extremely difficult conditions,” Das said.
Crude oil prices are volatile with implications for imported cost pressures on
inflation, RBI said. “The combination of elevated prices of industrial raw
materials, high pump prices of petrol and diesel with their second-round effects,
and logistics costs continue to impinge adversely on cost conditions for
manufacturing and services, although weak demand conditions are tempering the
pass-through to output prices and core inflation.
(i) How does RBI promote growth process of country:-
a) By controlling price level in country
b) By changing various interest rates and money supply
c) By increasing supply of products
d) All of above
(ii) Elaborate on the specific quantitative tools or measures employed by the
RBI to control and maintain its inflation target within the prescribed range of
2% to 6%?
(iii) Why fluctuations in crude oil prices is a matter of concern, as highlighted by
 RBI in the provided paragraph and how do these fluctuations impact
economic conditions?
13 Read the following statement: 4
‘High Powered Money and Bank Money jointly influence the money supply’.
Defend or refute the following statement with valid rationale.
14 (a) Define Reverse Repo Rate. Discuss briefly, how this instrument helps in 2
controlling credit creation by commercial banks?
(b) ‘Central bank is the custodian of the cash reserves of commercial banks’. In 2
the light of the above statement give valid reasons to support your argument.
15 While learning about the functions of the Reserve Bank of India, Divya gets to 4
know that the Reserve Bank of India has the sole right in India to print
money. She finds this very fascinating and wonders why the RBI is not
printing enough money to eliminate the problem of poverty from the Indian
economy. The next day, she asked this question to her economics teacher.
What explanation is her teacher most likely to give her?
16 (a) Imagine you are the Governor of Reserve Bank of India. Due to the fear of 3
global recession, the private investment in the Indian economy has fallen.
What steps can you take to boost private investment?
(b) "The process of credit creation by commercial banks comes to an end when
3
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.
17 (a) Since the invention of money, the problem of the double coincidence of 3
wants has been largely eliminated. Which specific function of money
primarily addresses this challenge in trade and economic transactions?
(b) "As per announcement made by the Governor of the Reserve Bank of India
3
(RBI) on May 4. 2022, it has been decided to increase the Cash Reserve Ratio
(CRR) by 50 basis points from 4% to 4.5%. Analyze the impact of this step of
RBI on total credit creation in the economy.