Chapter Exam

Chapter-2 Money and Banking — Online MCQ Test

Q: Which of the following is NOT a primary function of money?

Answer: D. Production of goods — Money serves as a medium of exchange, store of value, and unit of account, but production of goods is an economic activity, not a function of money itself.

Q: What does M1 include in the Indian money supply?

Answer: B. Currency with public + demand deposits of banks — M1, the narrow money supply, comprises currency notes and coins held by the public plus demand deposits of banks, which can be withdrawn on demand.

Q: If the Reserve Bank increases the Cash Reserve Ratio (CRR), what is the likely impact on money supply?

Answer: B. Money supply decreases — When CRR increases, commercial banks must keep more cash with the RBI, reducing the funds available for lending and thus decreasing money supply.

Q: Which of the following would be the most effective monetary policy tool to combat rapid inflation?

Answer: C. Increasing the bank rate and repo rate — To combat inflation, the RBI would increase interest rates (bank rate, repo rate) to reduce money supply and borrowing, thereby controlling price levels.

Q: A bank receives deposits of ₹50,000 with a required CRR of 10% and SLR of 20%. How much can it lend if both requirements are met?

Answer: A. ₹35,000 — CRR requirement = 10% × ₹50,000 = ₹5,000 (with RBI); SLR requirement = 20% × ₹50,000 = ₹10,000 (as liquid assets); Total reserves needed = ₹15,000; Amount available for lending = ₹50,000 - ₹15,000 = ₹35,000.

ECONOMICS · Grade 12 · CBSE(NCERT)

Practice Chapter-2 Money and Banking with a free chapter-wise online MCQ test for CBSE(NCERT) Grade 12 ECONOMICS. This chapter covers: money - functions of money - commercial banks - money creation - RBI - quantitative tools - qualitative tools. AI-generated questions from basic to board-exam level, with instant results and explanations.

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Chapter-2 Money and Banking — Important Questions & Answers (FAQ)

Frequently asked questions from CBSE(NCERT) Grade 12 ECONOMICS — Chapter-2 Money and Banking, with answers and explanations. These are sample questions; the exam has its own separate question set.

Which of the following is NOT a primary function of money?

A. Medium of exchange
B. Store of value
C. Unit of account
D. Production of goods ✓

Answer: D. Production of goods
Money serves as a medium of exchange, store of value, and unit of account, but production of goods is an economic activity, not a function of money itself.

What does M1 include in the Indian money supply?

A. Only currency notes and coins
B. Currency with public + demand deposits of banks ✓
C. All types of deposits including savings deposits
D. Only bank deposits

Answer: B. Currency with public + demand deposits of banks
M1, the narrow money supply, comprises currency notes and coins held by the public plus demand deposits of banks, which can be withdrawn on demand.

If the Reserve Bank increases the Cash Reserve Ratio (CRR), what is the likely impact on money supply?

A. Money supply increases
B. Money supply decreases ✓
C. Money supply remains unchanged
D. Bank deposits increase

Answer: B. Money supply decreases
When CRR increases, commercial banks must keep more cash with the RBI, reducing the funds available for lending and thus decreasing money supply.

Which of the following would be the most effective monetary policy tool to combat rapid inflation?

A. Decreasing the CRR
B. Purchasing government securities through OMO
C. Increasing the bank rate and repo rate ✓
D. Reducing the SLR

Answer: C. Increasing the bank rate and repo rate
To combat inflation, the RBI would increase interest rates (bank rate, repo rate) to reduce money supply and borrowing, thereby controlling price levels.

A bank receives deposits of ₹50,000 with a required CRR of 10% and SLR of 20%. How much can it lend if both requirements are met?

A. ₹35,000 ✓
B. ₹40,000
C. ₹30,000
D. ₹45,000

Answer: A. ₹35,000
CRR requirement = 10% × ₹50,000 = ₹5,000 (with RBI); SLR requirement = 20% × ₹50,000 = ₹10,000 (as liquid assets); Total reserves needed = ₹15,000; Amount available for lending = ₹50,000 - ₹15,000 = ₹35,000.

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