Case Study Chapter 9 Money and Banking

Please refer to Case Study Chapter 9 Money and Banking with answers provided below. These case study based questions are expected to come in the upcoming Class 12 Economics examinations. We have provided economics case studies with answers class 12 for all chapters on our website as per the latest examination pattern issued by CBSE, NCERT, and KVS.

Chapter 9 Money and Banking Economics Case study with Answers Class 12

Case Based Questions

Read the para given below and answer the questions that follow:

The money supply is all the currency and other liquid instruments in a country’s economy on the date measured. The money supply roughly includes both cash and deposits that can be used almost as easily as cash. Governments issue paper currency and coins through some combination of their central banks and treasuries. Bank regulators influence money supply available to the public through the requirements placed on banks to hold reserves, how to extend credit and other regulations. Economists analyze the money supply and develop policies revolving around it through controlling interest rates and increasing or decreasing the amount of money flowing in the economy. An increase in the supply of money typically lowers interest rates, which in turn, generates more investment and puts more money in the hands of consumers, thereby stimulating spending. Businesses respond by ordering more raw materials and increasing production. The increased business activity raises the demand for labour. The opposite can occur if the money supply falls or when its growth rate declines.

Questions:

Question. Who regulates money supply in India?
(a) Government of India
(b) Reserve Bank of India
(c) Commercial banks
(d) Planning Commission

Question. Which of the following statement is not true regarding money supply?
(a) It is a stock variable.
(b) It does not include money held by government and the banking system.
(c) It includes term deposits with the banks.
(d) It includes currency held with the public.

Question. Which of the following is not a function of The Reserve Bank of India?
(a) It helps in barter exchange.
(b) It issues the currency of the country.
(c) It acts as a bank of the banking system.
(d) It is the custodian of the foreign exchange reserves of the economy.

Question. From the set of statements given in Column I and II, choose the correct pair of statements:

Column I	Column I I
1. Bank money	A. exchange of money for goods
2. Barter exchange	B. a component of money supply.
3. Demand deposits with banks	C. demand deposits created by commercial banks
4. Legal tender	D. money which can be legally used to make payment of debts

(a) 1-A
(b) 2-B
(c) 3-C
(d) 4-D

Question. Money is what money does. 

Question. Cheques are fiat money. 

Question. Introduction of money has removed the major drawback of double coincidence of wants in the barter system of exchange. 

Question. Commodity value of a ten rupee coin in India is more than its money value. 

Read the para given below and answer the questions that follow:

The Reserve Bank of India is the Central Bank of India, which means it is at the apex of the banking structure of the economy. It is one of the main governing bodies and regulatory bodies in India and helps the government in its role as a business facilitator. The RBI was first established on the 1st of April 1935 and nationalized in 1949. The governing of the RBI is done in accordance to the RBI Act by the government. Its day to day affairs are taken care of by the Board of Directors who are chosen by the government.The RBI is the only authorized body that can issue currency in the country So they print, distribute and regulate the flow of currency in the economy. The RBI provides the central and state government with basic banking functions and facilities like depositing money, remittances etc. It can also make advances and provide loans to the government whenever necessary. It also supervises all other commercial banks in the country and provides financial assistance to these banks like short-term loans and advances. It is the function of the RBI to maintain the value of the rupee in the global economy. It does so by acting as the custodian of foreign exchange reserves in the country. It maintains enough reserves to battle against fluctuations. The RBI also maintains control of credit and money in the market. It uses qualitative and quantitative methods to either expand or contract the available credit in the economy according to circumstances. 

Questions:

Question. The monetary policy generally targets to ensure:
(a) price stability in the economy.
(b) employment generation in the country.
(c) stable foreign relations.
(d) greater tax collections for the government.

Question. Lowering the bank rate is a measure to:
(a) encourage foreign investment in the economy.
(b) increase money supply in the economy. 
(c) discourage investment activity in the economy.
(d) increase government expenditure.

Question. In order to encourage investment in the economy, the central bank may:
(a) reduce cash reserve ratio.
(b) increase cash reserve ratio.
(c) sell government securities in open market.
(d) increase the bank rate.

Question. If the legal reserve ratio is 20%, the value of money multiplier would be:
(a) 2
(b) 3
(c) 5
(d) 4

Question. Money is a dynamic factor 

Question. Flat money is that money which is accepted as a medium of exchange because of the trust yer and the payee. 

Question. Money value of a Thousand rupee note is what is written on it. 

Question. Money has facilitated the sale and purchase of goods and services. 

Read the para given below and answer the questions that follow:

The Reserve Bank of India (RBI) on Friday kept interest rates on hold while assuring to maintain support for reflecting the economy by ensuring ample liquidity to manage the government’s near-record borrowing. The six-member Monetary Policy Committee (MPC) voted to continue with the accommodative stance as long as it is necessary to revive growth and mitigate the impact of Covid-19 on the economy while ensuring that inflation remains within the target, Governor Shaktikanta Das said. While the Union Budget 2021 laid down an expansive fiscal strategy over the medium term to strengthen the growth engine in the economy, the RBI affirmed its support to such a plan through appropriate monetary tools. To absorb higher government borrowings, the Central Bank provided retail investors a direct option to invest in government securities. It also sapped some funds from banks by raising the Cash Reserve Ratio (CRR) and using the money for more targeted market operations. The MPC, which cut borrowing costs by 115 basis points last year, kept the repurchase or repo rate unchanged at 4 percent. Consequently, the reverse repo rate will also continue to earn 3.35  per cent for banks for their deposits kept with the RBI. Das announced the restoration of CRR – the amount of deposits lenders must set aside as reserves – to 3.5 per cent in March and 4 per cent in May. The cash returning to the central bank can be used by it for open market operations and other liquidity measures.

Questions:

Question. Loans offered by commercial banks _______ (increase/decrease) the money supply in the  economy .  

Question.Which of the following is not a quantitative method of credit control?
(a) open market operation
(b) bank rate policy
(c) legal reserve requirements
(d) margin requirements

Question. The two essential conditions for a financial institution to become a bank are:
(a) accepting deposits and lending
(b) printing currency notes
(c) both (a) and (b)
(d) neither (a) nor (b)

Question. The central bank does not performs the following functions.
(a) conducts sale and purchase of securities for foreign governments securities.
(b) acts as a lender of the last resort.
(c) controls money supply and credit.
(d) manages the nation’s reserves of international currency.

Question. Money supply in the economy include only notes and coins issued by the central bank. 

Question. Stock of money with the government is a part of money supply. 

Question. Gross demand deposits are not a part of money supply while net deposits are. 

Question. Commercial banks are the principal suppliers of money in India. 

Read the para given below and answer the questions that follow:

Heightened uncertainty in India caused by the Coronavirus pandemic led to a surge in the currency in circulation as people hoarded cash or put money in accessible deposits to safeguard themselves against salary cuts or job losses . According to RBI data, India’s M3 money supply rose 6.7% in the first five months of 2020 compared with the same period in 2019, the highest growth in seven years. Currency in circulation, which measures money with the public and in banks has also surged. Gross capital formation, or total investments toward fixed capital in the country, fell significantly . Savings and current account deposits fell 8% due to higher withdrawals. The growth in currency notes held by the public was much higher than the deposits made in banks. A rise in money supply usually is seen as a leading indicator of growth in consumption and business investments, but the rise this time was unlikely to bolster either, analysts said. The increase was a reflection of higher cash withdrawals by depositors to meet the needs during the lockdown period, until normalcy returns.

Questions:

Question. Which of the following statements is true?
(a) Money Multiplier is inversely related to LRR.
(b) Loans given by Commercial banks are equal to the amount of deposits they receive.
(c) CRR is decreased to control inflation
(d) Demand deposits refer to the cash reserves of Commercial Banks.

Question. Choose the correct pair of statements from the given statements in Column I and II: 

Column I	Column II
1. LRR	A. rate of interest at which Central Bank lends to commercial banks for long term
2. Reverse Repo Rate	B. rate at which the RBI borrows money from commercial banks
3. Bank Rate	C. rate at which Central Bank advances short term loans to commercial banks
4. Repo Rate	D. minimum reserve maintained by a commercial bank

(a) 1-A
(b) 2-B
(c) 3-C
(d) 4-D

Question. The moral influence that the Central Bank applies on member banks in order to get them to act in line with its policy is called as________.

Question. _________ (quantitative/qualitative) instruments of monetary policy affect the direction of credit in the economy. 

Question. Money can be withdrawn as and when needed by the depositors in case of term deposits. 

Question. Demand deposits with commercial banks are a part of money supply. 

Question. In the C-C economy, saving is ruled out because there is no money in this economy.

Question. Money value of a paper note is what is written on it. 

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