Microfinance Quiz: Demonetization and More

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Questions and Answers

How did demonetization impact the formal financial system?

It increased the availability of black money within the formal financial system

It channeled individual savings into the formal financial system and allowed banks to provide loans at lower interest rates (correct)

It resulted in a decrease in tax compliance and increased tax evasion

It led to a shortage of currency and negatively impacted economic activities

What is the significance of banks lending to poor women when organized in SHGS?

It shows that banks are unwilling to lend without collateral (correct)

It demonstrates the state's decision to curb black money and reduce tax evasion

It allows banks to provide loans at higher interest rates

It results in a decrease in tax compliance and increased tax evasion

What was the primary goal of India's demonetization in November 2016?

To create a shortage of currency and negatively impact economic activities

To combat corruption, black money, terrorism, and fake currency circulation (correct)

To encourage higher tax evasion and corruption

To increase the circulation of old currency notes

What happens if a member of a group does not repay their loan in an SHGS?

Other members of the group follow up seriously to ensure repayment Signup and view all the answers

What was the deadline for depositing old currency notes in bank accounts without declaration after demonetization?

31 December 2016 Signup and view all the answers

How did demonetization impact tax compliance?

It led to an increase in tax compliance Signup and view all the answers

What is the main reason for holding money according to the given text?

To carry out transactions Signup and view all the answers

What does the text mean by 'liquidity preference'?

The preference for holding a cash balance for daily expenses Signup and view all the answers

In the given scenario, what is the average money holding of the firm and worker?

Rs 50 each Signup and view all the answers

What does 'liquidity' refer to in the context of the given text?

The ease of exchanging money for other goods Signup and view all the answers

What is the opportunity cost involved in holding money, as mentioned in the text?

Loss of interest that could be earned by putting money in a fixed deposit at a bank Signup and view all the answers

What does 'transaction demand' refer to in the given text?

The need for money to carry out transactions Signup and view all the answers

Why do people desire to hold money balance according to the text?

To carry out transactions Signup and view all the answers

What is meant by 'demand and supply for money' in the context of the given text?

'Transaction motive' and 'liquidity preference' affecting demand and supply of money Signup and view all the answers

What is meant by 'formal payment system' according to the given text?

'Transaction demand' and electronic payment technologies Signup and view all the answers

Study Notes

Demonetization and Financial Systems

Demonetization impacted the formal financial system, with a focus on promoting digital payments and reducing black money.

Self-Help Groups (SHGs)

Banks lending to poor women organized in SHGs increases their financial inclusion and empowerment.
If a member of an SHG does not repay their loan, the entire group is held responsible and may face penalties.

India's Demonetization (2016)

The primary goal of India's demonetization in November 2016 was to reduce black money, curb terrorism funding, and promote digital payments.

Post-Demonetization

The deadline for depositing old currency notes in bank accounts without declaration after demonetization was December 30, 2016.
Demonetization improved tax compliance, as many people disclosed their income and assets during the remonetization process.

Money and Liquidity

The main reason for holding money is the liquidity preference, which arises from uncertainty and the need for transactions.
Liquidity refers to the ease and speed of converting assets into cash without significant loss of value.
In the context of the firm and worker scenario, the average money holding is ₹1,000 for the firm and ₹500 for the worker.
The opportunity cost of holding money is the return that could have been earned if the money was invested elsewhere.
Transaction demand refers to the need to hold money for daily transactions and unexpected expenses.

Demand and Supply for Money

People desire to hold money balance due to uncertainty, transaction demand, and liquidity preference.
Demand and supply for money refer to the equilibrium between the desire to hold money and the availability of money in the economy.
Formal payment systems refer to organized financial institutions and channels that facilitate transactions, such as banks and ATMs.

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Description

Test your knowledge about microfinance, self-help groups, and the impact of demonetization in India. Explore concepts related to lending to poor women, group responsibility for loan repayment, and the effects of demonetization on currency circulation and the economy.