TN Board 12th Economics Important Questions Chapter 5 Monetary Economics

Students get through the TN Board 12th Economics Important Questions Chapter 5 Monetary Economics which is useful for their exam preparation.

TN State Board 12th Economics Important Questions Chapter 5 Monetary Economics

Very short answer questions

Question 1.
Write a note on the silver standard.
Answer:
This monetary system fixes the economic unit of account with the weight of silver. The silver standard is a monetary arrangement in which the Government allows the conversion of the currency into a fixed amount of silver.

Question 2.
Write a note on paper currency standard.
Answer:
In this system, paper currency notes are issued by the Treasury or RBI circulate as unlimited Legal Tender. It cannot be converted into metal. It is also known as a managed currency standard.

Question 3.
Write a note on cryptocurrency.
Answer:
A digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the Transfer of Funds, operating independently of a Central Bank.

Question 4.
What are the Four alternative measures of the money supply?
Answer:
M₁ = Currency coins and demand deposits.
M₂ = M₁ + Savings deposits with Post Office Savings banks.
M₃ = M₂ + Time deposits of all commercial and co-operative banks.
M₄ = M₃ + Total deposits with Post Offices.
M₁ and M₂ are known as narrow money.
M₃ and M₄ are known as broad money.

Question 5.
Write a note on the currency symbol.
Answer:
The new symbol was designed by D.Udaya Kumar, IIT Bombay was selected by the Union cabinet on 15* July 2010. The new symbol is an amalgamation of Devanagri ‘Ra’ and the Roman ‘R’ without the stem. It came into use in India on 15th July 2010.

Question 6.
What is Narrow money?
Answer:
M1 and M2 are narrow money because they include currency plus demand deposits in banks and other deposits.

Question 7.
How does money increase the productivity of capital?
Answer:

1. Money is the most liquid form of capital.
2. Capital in the form of money can be put to any use.

Question 8.
Write a note Wage-Price.
Answer:
The wage-Price spiral is used to explain the cause and effect relationship between rising wages and rising prices or Inflation.

Question 9.
What are the three measures to prevent and control Inflation?
Answer:

1. Monetary measures
2. Fiscal measures and
3. Other measures.

Question 10.
Write a note on Monetary Economics.
Answer:
Currency is created by the RBI and union government. Bank deposits are created by commercial banks and cooperative banks. The demand for money is determined by a number of factors such as income, price level, interest rate, etc.

Short answer questions

Question 1.
What do you mean by money? – Explain.
Answer:
Money is anything that is generally accepted as payment for goods and sendees. As a medium of exchange for repayment of debts. Money is the basis for all credit. The importance of credit has increased in all countries of the world. Credit instruments are used on a large scale. The use of cheques, bills of exchange, etc., has gone up.

Question 2.
What is the history of the Barter system?
Answer:
The history of the Barter system starts from 6000 BC.

1. The barter system was introduced by Mesopotamia tribes.
2. Before money was introduced, the exchange of goods took place.
3. Under the Barter system, buyers and sellers of commodities had to face a lot of difficulties.
4. Phoenicians adopted (Barter) the exchange of goods with various other cities across oceans.
5. Babylonians also developed an improved barter system (goods for goods).

Question 3.
Write a note on Money Supply.
Answer:
Money Supply is a stock variable. It plays an important role in the determination of price level and interest rates. Money supply at a point of time is stock and over a period of time, it is a Flow. So money supply is the amount of money that is in circulation in an economy at any given time.

Question 4.
What do you mean by Inflation?
Answer:
Inflation is a consistent rise in the general price level. Inflation is the rate at which the general prices for goods and services are rising and consequently, the purchasing power of currency is falling.

Question 5.
Write a Note of Deflation.
Answer:
The important features of deflation are: (a) Falling prices, (b) Reduces Money supply, (c) Unemployment. In the case of Inflation falling prices are desirable but that should not lead to a fall in the level of production and Employment. But if prices fall from the level of full employment both Income and Employment will be affected adversely.

Long answer questions

Question 1.
Measures to Control Inflation – Explain.
Answer:
Keynes and Milton Friedman together suggested three measures to prevent and control inflation.
They are:

1. Monetary Measures
2. Fiscal Measures (J.M. Keynes)
3. Other Measures

Monetary Measures: Three measures are adopted by RBI. They are

1. Increase in Bank rate.
2. Sale of Government securities in the open market.
3. Higher Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR).
4. Consumer Credit Control and
5. Higher Margin requirements
6. Higher Repo Rate and Reverse Repo Rate.

Fiscal Measures: This measure is considered important to handle or an instrument to handle inflationary situations.
Anti-Inflationary Fiscal Measure is:

1. Reduction of Government Expenditure
2. Public Borrowing and Enhancing Taxation

Other Measures: It is divided into two
(a) Short-Term Measures
(b) Long-Term Measures
(a) Short-Term Measures: It is the distribution of essential products to the public through Fair Price (Rationing) Shops. Whenever shortages occur in India for basic goods, the goods are imported to avoid Inflation.
(b) Long-Term Measures: To accelerate economic growth especially for wage goods which has a direct bearing on the general price level and the cost of living. Restrictions on present Consumption may help in improving saving and investment so that the rate of Economic growth will be accelerated in the Longrun.

Multiple-choice questions

1. Barlir system was introduced by:
(a) Mesopotamia Tribes
(b) Baby Lonians
(c) Russians
(d) Americans
Answer:
(a) Mesopotamia Tribes

2. Currency notes are issue by in India.
(a) SBI
(b) RBI
(c) ICICI
(d) IDBI
Answer:
(b) RBI

3. Trade cycle is classified into Phases.
(a) 1
(b) 2
(c) 3
(d) 4
Answer:
(d) 4

4. Marshall’s Equation is:
(a) M = PKY
(b) M = KPY
(c) MV = PT
(d) MV = M’P’
Answer:
(b) M = KPY

5. …………. is the Liquid asset.
(a) Water
(b) Milk
(c) Money
(d) All of these
Answer:
(c) Money

6. When there is an increase in price rapidly, it is called as:
(a) Recession
(b) Hyper Inflation
(c) Galloping Inflation
(d) Creeping Inflation
Answer:
(b) Hyper Inflation

7. ‘Inflation is Taxation’ without Legislation was defined by:
(a) Alfred Marshall
(b) Keynes
(c) Adam Smith
(d) Milton Friedman
Answer:
(d) Milton Friedman

8. Money supply is the total amount of money in:
(a) Sector
(b) Economy
(c) World
(d) Household
Answer:
(b) Economy

9. The rupee symbol came into use on:
(a) 15th July 2010
(b) 16th July 2010
(c) 20th July 2010
(d) 1st July 2010
Answer:
(a) 15th July 2010

10. The Purchasing power of money, the book was published in:
(a) 1931
(b) 1921
(c) 1911
(d) 1941
Answer:
(c) 1911

11. …………. is the general form of Equation by Fisher.
(a) MV = PT
(b) M’V’ = PT
(c) M = KPY
(d) N = P/K
Answer:
(a) MV = PT

12. Inflation will slow down during:
(a) Recession
(b) Depression
(c) Stagflation
(d) Disinflation
Answer:
(d) Disinflation

13. The Economic activity becomes very slow during:
(a) Boom
(b) Depression
(c) Recovery
(d) Recession
Answer:
(b) Depression

14. ………… is the Fraction of deposits of Commercial Banks with RBI.
(a) SLR
(b) CDR
(c) CRR
(d) RDR
Answer:
(c) CRR

15. …………. is the Branch of Economics which provides a framework for analyzing money.
(a) Fiscal Policy
(b) Monetary Economics
(c) Macro Economics
(d) Micro Economics
Answer:
(b) Monetary Economics

16. …………. is an alternative to the cash.
(a) Gold
(b) Silver
(c) Plastic money
(d) Cheque
Answer:
(c) Plastic money

17. The first Hyper Inflation of the 21st Century was:
(a) April 2009
(b) April 2008
(c) April 2006
(d) April 2007
Answer:
(d) April 2007

18. Which of the following is a must for anything to be called money:
(a) Measure of deferred Payment
(b) Medium of Exchange
(c) Store of Value
(d) Measure of Value
Answer:
(b) Medium of Exchange

19. Money is suitable for storing wealth because:
(a) It requires less space
(b) If is readily acceptable for exchange
(c) It is easily portable
(d) All the above
Answer:
(d) All the above

20. Supply of money refers to Quantity of Money:
(a) During the year only
(b) During any period of time
(c) As on 31st March only
(d) As on any point of time
Answer:
(d) As on any point of time

21. Money Supply refers to:
(a) Currency outside banks and all bank deposits
(b) Currency inside bank
(c) Currency outside banks and demand deposits in bank
(d) Currency outside and Inside bank
Answer:
(c) Currency outside banks and demand deposits in bank

22. Money has made possible:
(a) Borrowing and Lending
(b) Creation of Financial Institutions
(c) Keeping of accounts
(d) All the above
Answer:
(d) All the above

23. Which of the following makes a financial Institution, a Bank:
(a) Accepting Deposits
(b) Lending
(c) Accepting demand Deposits
(d) Accepting time deposits
Answer:
(c) Accepting demand Deposits

24. Creation of money by Commercial Banks refers to:
(a) Creation of Bank deposits
(b) Issuing Currency
(c) Both (a) & (b)
(d) All the above
Answer:
(a) Creation of Bank deposits

25. How much money are banks able to create is determined by:
(a) Initial deposits
(b) SLR
(c) CRR
(d) All the above
Answer:
(d) All the above

26. The value of money multiplier equals:
(a) 1/SLR
(b) 1/CRR
(c) 1/(SLR+CRR)
(d) None
Answer:
(c) 1/(SLR+CRR)

27. Given CRR = 4% and SLR = 16%, the value of multiplier is:
(a) 25
(b) 26
(c) 5
(d) 10
Answer:
(c) 5

28. When the central bank sells securities, in the market, the credit creation capacity of the commercial bank is likely to:
(a) Rise
(b) Fall
(c) May rise or fall
(d) No effect
Answer:
(b) Fall

29. Lowering of CRR by Central Bank has the following impact on credit creation:
(a) Negative
(b) Positive
(c) Neutral
(d) No Effect
Answer:
(b) Positive

30. Raising Reverse Repo Rate by the Central Bank is likely to have the following impact on demand for goods and services in the Economy: ,
(a) Rises
(b) Falls
(c) All Effects
(d) No Effect
Answer:
(b) Falls

31. With Lowering Margin requirements by the Central Government, the borrowing capacity of the borrowers:
(a) Rises
(b) Falls
(c) Both rise and fall
(d) No Effect
Answer:
(a) Rises

32. Which of the following is a Bank?
(a) Post Office Savings Bank
(b) SBI
(c) UTI
(d) IDBI
Answer:
(b) SBI

33. Name the instrument through which commercial bank remit money to distant places:
(a) Letter
(b) Telex
(c) Cell Phone
(d) Demand Draft
Answer:
(d) Demand Draft

34. What is the facility of drawing more money from banks by businessmen?
(a) Demand Draft
(b) Fixed Deposit
(c) Over Draft
(d) Mail Transfer
Answer:
(c) Over Draft

35. Name the institution which acts as a custodian of Foreign Exchange reserves:
(a) Central Bank
(b) RBI
(c) None
(d) Both (a) & (b)
Answer:
(d) Both (a) & (b)

36. Name the institution which performs the function of a clearinghouse:
(a) RBI
(b) IDBI
(c) SBI
(d) UTI
Answer:
(a) RBI