Monetary Policy and GDP Quiz
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Questions and Answers

What is the main purpose of monetary policy?

  • To control private consumption expenditure
  • To influence the level of aggregate demand for goods and services (correct)
  • To regulate government expenditure
  • To increase the level of private investment expenditure

    • How does monetary policy operate?

  • By varying the cost and availability of credit (correct)
  • By increasing the level of government investment expenditure
  • By controlling private consumption expenditure
  • By regulating government expenditure

    • What forms the basis of most economic activities in a credit economy?

  • Net exports
  • Credit (correct)
  • Government expenditure
  • Private consumption expenditure

    • Which factor influences the level and nature of economic activities in a credit economy?

    <p>Credit availability and cost</p> Signup and view all the answers

    What does Gross National Product (GNP) equation represent?

    <p>Aggregate spending including private consumption, investment, government spending, and net exports</p> Signup and view all the answers

    How do fiscal and monetary policies influence the economy?

    <p>By influencing and regulating spending behavior of various classes and availability of credit respectively</p> Signup and view all the answers

    Which of the following is NOT a measure of money stock employed by the Reserve Bank of India?

    <p>M5</p> Signup and view all the answers

    What are the components of M1, the measure of money stock designed by M1?

    <p>Currency with the public and demand deposits with banks</p> Signup and view all the answers

    Which instrument of monetary policy involves the purchase or sale of government securities and treasuries to influence the money supply?

    <p>Open-market operations</p> Signup and view all the answers

    What happens to interest rates when the Reserve Bank of India sells government securities as part of open-market operations?

    <p>Interest rates rise</p> Signup and view all the answers

    What is the percentage amount of reserves that need to be maintained with the RBI by commercial banks in cash called?

    <p>Cash reserve ratio (CRR)</p> Signup and view all the answers

    What is the lending of funds to commercial banks against securities by RBI called?

    <p>Repo/Reverse Repo</p> Signup and view all the answers

    Which measure of money stock is usually referred to as aggregate monetary resources?

    <p>M3</p> Signup and view all the answers

    When the Reserve Bank of India decreases monetary base by selling government securities, what happens to the loanable funds of banks?

    <p>Loanable funds decrease</p> Signup and view all the answers

    What does CRR raising lead to for banks in terms of lending?

    <p>Lending decreases</p> Signup and view all the answers

    What does CRR lowering lead to for banks in terms of lending?

    <p>Lending increases</p> Signup and view all the answers

    What is the primary determinant of banks' capacity to provide credit?

    <p>Cash reserves and deposit resources</p> Signup and view all the answers

    Which measure of money stock includes fixed deposits with the banks?

    <p>M3</p> Signup and view all the answers

    What is the main purpose of open market operations by the Reserve Bank of India?

    <p>Influence the money supply and manage interest rates</p> Signup and view all the answers

    What happens to interest rates when the Reserve Bank of India sells government securities as part of open market operations?

    <p>Rise</p> Signup and view all the answers

    What does the cash reserve ratio (CRR) represent?

    <p>The percentage amount of reserves that banks maintain with RBI</p> Signup and view all the answers

    What does discount window lending by RBI involve?

    <p>Lending funds to commercial banks against securities</p> Signup and view all the answers

    What is the impact on loanable funds of banks when RBI buys government securities?

    <p>Increase</p> Signup and view all the answers

    Which measure of money stock is usually referred to as aggregate monetary resources?

    <p>M3</p> Signup and view all the answers

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