HomeMock TestState PCSRailwaySSCHSSCDSSSBRO/AROUPSC

MONEY AND BANKING (Part – I)

📆 September 17, 2024

Total Questions: 150

31. Reserve Bank of India issues currency notes against which of the following? [M.P.P.C.S (Pre) 2012]

Correct Answer: (d) All of the above
Solution:All banknotes issued by the RBI are backed by assets such as gold coin, gold bullion, rupee coin, Govt. of India rupee securities and foreign securities, as defined in Section 33 of RBI Act, 1934

Reserve Bank of India (RBI) is the nation's central bank, tasked with overseeing and regulating the monetary and financial framework of India. Established on April 1, 1935, based on the recommendations of the Hilton Young Commission, under the Reserve Bank of India Act of 1934, the RBI plays a crucial role in India's economic development by managing the country's currency, credit, and financial stability.
Reserve Bank of India (RBI) regulates the issue and supply of the Indian currency and manages the country's monetary policy to ensure financial stability and economic growth. It plays a key role in controlling inflation, ensuring the smooth functioning of the financial system, and promoting digital payments and financial inclusion across the country.

32. Who is authorized to issue coins in India? [U.P.U.D.A./L.D.A. (SPL.) (Pre) 2010]

Correct Answer: (b) Ministry of Finance
Solution:The Government of India (Ministry of Finance) is the issuing authority of coins and supplies coins to the Reserve Bank on demand. The Reserve Bank puts the coins into circulation on behalf of the Central Government.

Coins are minted by the Government of India. The Reserve Bank is the agent of the Government for distribution, issue and handling of coins. Four mints are in operation: Mumbai in Maharashtra, Noida in Uttar Pradesh, Kolkata (W. Bengal), and Hyderabad (Telangana).

33. Coins are minted in India at : [U.P.P.C.S (Mains) 2008]

Correct Answer: (d) Mumbai, Kolkata and Hyderabad
Solution:The Government of India (Ministry of Finance) is the issuing authority of coins and supplies coins to the Reserve Bank on demand. The Reserve Bank puts the coins into circulation on behalf of the Central Government.

Coins are minted by the Government of India. The Reserve Bank is the agent of the Government for distribution, issue and handling of coins. Four mints are in operation: Mumbai in Maharashtra, Noida in Uttar Pradesh, Kolkata (W. Bengal), and Hyderabad (Telangana).

34. Currency expansion can be best described - [R.A.S/R.T.S (Pre) 1996]

Correct Answer: (a) Higher prices
Solution:Currency expansion means supply of money has increased Due to increase in money suppl, the value of money decrease. As a result, prices of goods and service will rise.

An expansionary monetary policy is focused on expanding (increasing) the money supply in an economy. This is also known as Easy Monetary Policy. An expansionary monetary policy is implemented by lowering key interest rates thus increasing market liquidity (money supply). High market liquidity usually encourages more economic activity.

35. With reference to Indian economy, demand-pull inflation can be caused/increased by which of the following? [U.P.S.C (Pre) 2021]

1.Expansionary policies
2.Fiscal stimulus
3.Inflation-indexing power
4.Higher purchasing power
5.Rising interest rates

Select the correct answer using the code given below.

Correct Answer: (a) 1, 2 and 4 only
Solution:Demand-pull inflation emerges when the aggregate demands exceed the level of aggregate supply or full employment output. Consumers and investors seek to buy more than the total amount of output that can be produced. The demand-pull inflation may be caused by an increase in money supply. This would also occur when aggregate demand increase either because of rise in the marginal efficiency of Capital or a rise in the propensity to consume. Expansionary fiscal policy is intended to increase the money supply in the economy using budgetary instruments to either raise spending or cut taxes. So, expansionary fiscal policy can cause demand-pull inflation. Hence, statement 1 is correct. A fiscal stimulus is a package comprising tax rebates and incentives. It is used by the government to stimulate the economy and prevent the country from a financial crisis. It increases money supply in the economy and is intended to increase the demand, job creation, etc. So, it can also lead to the demand-pull inflation. Hence, statement 2 is also correct.

Inflation-indexing wages do not lead to demand-pull inflation because they are adjusted with inflation. They are provided to reduce the effect of inflation. Hence, statement 3 is incorrect.

Higher purchasing power can lead to demand-pull inflation, because consumers have a lot to spend and they can demand more goods/services. Hence, statement 4 is correct. Rising of interest rates reduces money supply in the economy, so, it cannot lead to demand-pull inflation. Hence, statement 5 is incorrect.

36. Due to inflation : [Chhattisgarh P.C.S (Pre) 2013]

Correct Answer: (d) Above (a) and (b)
Solution:Inflation refers to the rise in the prices of goods and services and decline of purchasing power of a given currency over time. In comparison to foreign currencies, the value of Indian rupee also decline due to inflation. Hence, it does not improve the exchange rate.

Inflation is a gradual loss of purchasing power that results in a significant increase in the prices of goods and services over time. The inflation rate is calculated by averaging the price increases of a basket of selected goods and services over a year. High inflation means that prices are rising rapidly, whereas low inflation means that prices are rising more slowly.
Deflation: Inflation can be distinguished from deflation, which occurs when prices fall while purchasing power rises.

37. Which of the following is/are definite implication (s) of a fall in inflation rate : [U.P.P.C.S (Mains) 2017]

1. Expansionary policies
2. Fiscal stimulus
3. Inflation-indexing wages
4. Higher purchasing power
5. Rising interest rates

Select the correct answer using the code given below.

Correct Answer: (C) 2 only
Solution:A falling rate of inflation rate means that prices are increasing more slowly than before. The common measure of inflation is the inflation rate, the annualized percentage change in a general price index (e.g. consumer price index). If inflation rate is 5% in any month of the last year and it is 4% in same month this year, that means prices are increasing in both years in comparison to their previous years, but prices are increasing more slowly this year than the last year.
Deflation, or negative inflation on the otherhand, happens when prices generally fall in a economy in comparison to the prices of same period of the previous year. Increased food supply affects prices, but it is not a definite implication of a fall in inflation rate.

38. Who amongst the following benefits most from inflation : [U.P.P.C.S (Pre) 1995]

Correct Answer: (b) Debtors
Solution:Due to inflation, the prices of goods and services increase and the purchasing power of currency decline over time. In this situation, debtors get advantage and creditors get disadvantage.
Affected Groups Impact of Inflation
Debtors, Producer, Traders, Farmers, Changeable Income groups etc.Benefit
Consumers, Creditors, Moneylenders,
Pensioners, Fixed Income groups,
Savings Account holders etc.		Loss
Public expenditure, Import, Employment, TaxesIncrease
Public savings, ExportDecrease

39. Inflation is beneficial to which of the following section of economy? [U.P.R.O./A.R.O (Mains) 2016]

Correct Answer: (C) Debtors
Solution:Inflation occurs when there is a general increase in the price of goods and service and a fall in purchasing value of money . Inflation allows debtors (borrowers) to pay creditors (lender) back with money worth less than when it was originally borrowed, which benefits debtors. Thus inflation brings about a redistribution of real wealth in favour of debtors at the cost of creditors. Investors in bonds and securities with fixed interest rates, consumers, fixed income groups pensioners etc. also lose in real terms during inflation.

40. Consider the following statements : [U.P.S.C (Pre) 2013]

1.Inflation benefits the debtors.
2.Inflation benefits the bond-holders.

Which of the statements given above is/are correct?

Correct Answer: (a) only 1
Solution:Inflation occurs when there is a general increase in the price of goods and service and a fall in purchasing value of money . Inflation allows debtors (borrowers) to pay creditors (lender) back with money worth less than when it was originally borrowed, which benefits debtors. Thus inflation brings about a redistribution of real wealth in favour of debtors at the cost of creditors. Investors in bonds and securities with fixed interest rates, consumers, fixed income groups pensioners etc. also lose in real terms during inflation.
Home  | Mock Test  | State PCS  | Railway  | SSC  | HSSC  | DSSSB  | RO/ARO  | UPSC  | 
© 2024 Mock Test 365 | All Rights Reserved