Macroeconomics: Money and Banking

Topics in this chapter

• Money: Nature, Functions, and Types
• Money Supply and Monetary Aggregates
• Commercial Banking and Balance Sheets
• Credit Creation and Deposit Multipliers
• Central Bank Roles and Banking Regulation
• Monetary Policy Instruments and Demand

Cheat sheet

Practice questions

1. Question 1Q-1ADAF1

   Which function of money is reflected when a person keeps money in a savings account to use it for purchasing goods in the future?

   1. A.Medium of exchange
   2. B.Store of value
   3. C.Unit of account
   4. D.Standard of deferred payment
   See the answer and solution
2. Question 2Q-ABCB18

   If the cash reserve ratio is 20% and banks lend all their excess reserves, with no cash leakages, an initial deposit of ₹10,000 can lead to a maximum total deposit creation of:

   1. A.₹12,000
   2. B.₹20,000
   3. C.₹40,000
   4. D.₹50,000
   See the answer and solution
3. Question 3Q-FFC3DA

   Which action by the central bank is most likely to reduce the money supply in the economy?

   1. A.Purchasing government securities in the open market
   2. B.Selling government securities in the open market
   3. C.Reducing the bank rate
   4. D.Reducing the cash reserve ratio
   See the answer and solution
4. Question 4Q-C52370

   Why is the central bank called the lender of last resort?

   See the answer and solution
5. Question 5Q-4BABBD

   Which statement correctly describes demand deposits with commercial banks?

   1. A.They cannot be withdrawn before a fixed maturity date.
   2. B.They can be withdrawn on demand and used for payments through cheques or electronic transfers.
   3. C.They are issued only by the central government as legal tender.
   4. D.They are physical notes kept in the vaults of commercial banks.
   See the answer and solution