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ECONOMY MCQ PART 2

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Here are multiple-choice questions (MCQs) based on the Functions of Commercial Banks in the format you prefer:

1. Which of the following is NOT a primary function of commercial banks?

a) Accepting deposits
b) Providing loans and advances
c) Printing currency
d) Offering various payment and remittance services

Answer: c) Printing currency
Explanation: Commercial banks do not have the authority to print currency. This function is performed by the central bank (RBI in India).

2. Match the following functions of commercial banks with their descriptions:

Functions of Commercial BanksDescriptions
1. Accepting Depositsa) Providing funds to businesses and individuals for various purposes.
2. Granting Loans and Advancesb) Safeguarding customer money in various types of accounts.
3. Credit Creationc) Creating money through the lending process.
4. Agency Functionsd) Acting as an agent for customers in tasks like paying bills or buying shares.

Options: a) 1-b, 2-a, 3-c, 4-d
b) 1-a, 2-b, 3-d, 4-c
c) 1-c, 2-d, 3-b, 4-a
d) 1-b, 2-c, 3-a, 4-d

Answer: a) 1-b, 2-a, 3-c, 4-d
Explanation:

  • Accepting Deposits: Commercial banks hold customer deposits in savings, current, or fixed accounts (b).
  • Granting Loans and Advances: Banks provide loans to individuals and businesses for various needs (a).
  • Credit Creation: Banks create money through their lending process (c).
  • Agency Functions: Banks act as agents for customers by providing services like bill payments (d).

3. Consider the following statements:

  1. Commercial banks provide both short-term and long-term loans.
  2. Credit creation by commercial banks increases the money supply in the economy.
  3. Commercial banks perform the function of issuing currency.

Which of the above statements is/are correct? a) 1 and 2 only
b) 2 and 3 only
c) 1 only
d) 1, 2, and 3

Answer: a) 1 and 2 only
Explanation:

  • Statement 1 is correct: Commercial banks provide loans with varying durations, including both short-term and long-term.
  • Statement 2 is correct: Through the process of lending, banks create new money, increasing the money supply.
  • Statement 3 is incorrect: Issuing currency is a function of the central bank, not commercial banks.

4. Which of the following is a secondary function of commercial banks?

a) Accepting demand deposits
b) Issuing credit cards
c) Providing loans
d) Accepting savings deposits

Answer: b) Issuing credit cards
Explanation: Issuing credit cards is considered a secondary or additional function of commercial banks, while accepting deposits and providing loans are primary functions.

5. Match the following types of deposits with their characteristics:

Types of DepositsCharacteristics
1. Fixed Deposita) Deposit that can be withdrawn on demand, typically pays no interest.
2. Savings Accountb) Deposit that offers a fixed interest rate over a set period.
3. Current Accountc) Deposit where funds can be accessed but with limited withdrawals and interest.
4. Recurring Depositd) Deposit where customers regularly deposit fixed sums and earn interest over time.

Options: a) 1-b, 2-c, 3-a, 4-d
b) 1-a, 2-b, 3-d, 4-c
c) 1-c, 2-a, 3-b, 4-d
d) 1-d, 2-b, 3-c, 4-a

Answer: a) 1-b, 2-c, 3-a, 4-d
Explanation:

  • Fixed Deposit: Offers a fixed interest rate over a set period (b).
  • Savings Account: Provides limited withdrawals and interest (c).
  • Current Account: Can be withdrawn on demand, typically with no interest (a).
  • Recurring Deposit: Allows regular fixed deposits over time, earning interest (d).

6. Consider the following statements about the role of commercial banks in the economy:

  1. Commercial banks provide loans to businesses and individuals, helping them meet their financial needs.
  2. Commercial banks play a significant role in promoting savings and investments by offering various deposit schemes.
  3. Commercial banks have no role in facilitating international trade.

Which of the above statements is/are correct? a) 1 and 2 only
b) 2 and 3 only
c) 1 only
d) 1, 2, and 3

Answer: a) 1 and 2 only
Explanation:

  • Statement 1 is correct: Banks offer loans, facilitating business growth and personal financial needs.
  • Statement 2 is correct: By offering deposit schemes, banks promote savings and investment.
  • Statement 3 is incorrect: Commercial banks facilitate international trade through services like issuing letters of credit.

7. Which of the following is a function performed by commercial banks under their agency functions?

a) Providing working capital loans
b) Accepting deposits from customers
c) Purchasing and selling securities on behalf of customers
d) Creating credit in the economy

Answer: c) Purchasing and selling securities on behalf of customers
Explanation: One of the agency functions of commercial banks is to manage customer investments, including purchasing and selling securities.

8. Match the following categories of loans provided by commercial banks with their descriptions:

Categories of LoansDescriptions
1. Working Capital Loansa) Long-term loans for purchasing real estate or heavy equipment.
2. Personal Loansb) Loans provided for short-term needs of businesses, like inventory or payroll.
3. Term Loansc) Loans for individual expenses such as medical, educational, or personal purposes.
4. Overdraft Facilityd) A facility where customers can withdraw more than the available balance in their account.

Options: a) 1-b, 2-c, 3-a, 4-d
b) 1-c, 2-d, 3-b, 4-a
c) 1-a, 2-b, 3-c, 4-d
d) 1-b, 2-a, 3-d, 4-c

Answer: a) 1-b, 2-c, 3-a, 4-d
Explanation:

  • Working Capital Loans: Provided for short-term business needs like inventory (b).
  • Personal Loans: Given for personal expenses like medical or educational purposes (c).
  • Term Loans: Long-term loans for buying real estate or equipment (a).
  • Overdraft Facility: Allows customers to withdraw more than their balance (d).

9. Consider the following statements about the credit creation function of commercial banks:

  1. Commercial banks create credit by providing loans to borrowers.
  2. The process of credit creation increases the money supply in the economy.
  3. Credit creation has no impact on inflation.

Which of the above statements is/are correct? a) 1 and 2 only
b) 2 and 3 only
c) 1 only
d) 1, 2, and 3

Answer: a) 1 and 2 only
Explanation:

  • Statement 1 is correct: Banks create credit by lending money to borrowers.
  • Statement 2 is correct: Credit creation increases the money supply in the economy.
  • Statement 3 is incorrect: Credit creation can lead to inflation if it results in excessive money supply.

10. Which of the following is NOT an agency function of commercial banks?

a) Providing locker facilities for valuables
b) Issuing letters of credit for international trade
c) Providing investment advisory services
d) Granting home loans

Answer: d) Granting home loans
Explanation: Granting loans is a primary function of commercial banks, while providing investment advisory services, locker facilities, and issuing letters of credit are examples of agency functions.

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Here are multiple-choice questions (MCQs) based on Inflation: Causes, Types, and Control, as well as Deflation and Stagflation, in the format you prefer:

1. Which of the following best defines inflation?

a) A sustained decrease in the general price level of goods and services.
b) A general increase in the prices of goods and services over a period of time.
c) A situation where economic growth slows but prices remain constant.
d) An increase in the purchasing power of money.

Answer: b) A general increase in the prices of goods and services over a period of time.
Explanation: Inflation refers to the sustained rise in the general price level of goods and services, leading to a fall in the purchasing power of money.

2. Match the following types of inflation with their causes:

Types of InflationCauses
1. Cost-Push Inflationa) Excess demand for goods and services in the economy.
2. Demand-Pull Inflationb) Rising production costs, such as wages and raw materials.
3. Built-in Inflationc) Inflation that occurs due to higher prices, leading to higher wages, creating a wage-price spiral.
4. Hyperinflationd) Extremely rapid and out-of-control price increases.

Options: a) 1-b, 2-a, 3-c, 4-d
b) 1-a, 2-b, 3-d, 4-c
c) 1-b, 2-c, 3-a, 4-d
d) 1-c, 2-a, 3-d, 4-b

Answer: a) 1-b, 2-a, 3-c, 4-d
Explanation:

  • Cost-Push Inflation: Caused by rising production costs (b).
  • Demand-Pull Inflation: Results from excess demand in the economy (a).
  • Built-in Inflation: Created by the wage-price spiral (c).
  • Hyperinflation: Extremely rapid price increases (d).

3. Consider the following statements:

  1. Inflation reduces the purchasing power of money.
  2. Cost-push inflation occurs due to rising demand for goods and services.
  3. Hyperinflation is a situation where prices rise extremely fast and uncontrollably.

Which of the above statements is/are correct? a) 1 and 2 only
b) 1 and 3 only
c) 2 and 3 only
d) 1, 2, and 3

Answer: b) 1 and 3 only
Explanation:

  • Statement 1 is correct: Inflation reduces the value of money by increasing prices.
  • Statement 2 is incorrect: Cost-push inflation occurs due to increased production costs, not rising demand.
  • Statement 3 is correct: Hyperinflation involves an extreme and rapid rise in prices.

4. Which of the following is a tool used by central banks to control inflation?

a) Increasing government spending
b) Lowering interest rates
c) Reducing the money supply through open market operations
d) Increasing the money supply by printing more currency

Answer: c) Reducing the money supply through open market operations
Explanation: Central banks can control inflation by reducing the money supply through selling government securities in open market operations, thereby limiting liquidity in the economy.

5. Match the following inflation control measures with their descriptions:

Inflation Control MeasuresDescriptions
1. Tight Monetary Policya) Reducing government spending or increasing taxes to reduce demand.
2. Fiscal Policyb) Selling government securities and increasing interest rates to reduce money supply.
3. Price Controlsc) Government regulation of prices to prevent them from rising too quickly.
4. Supply-Side Measuresd) Policies aimed at improving productivity and reducing costs in the economy.

Options: a) 1-b, 2-a, 3-c, 4-d
b) 1-a, 2-b, 3-d, 4-c
c) 1-b, 2-d, 3-c, 4-a
d) 1-c, 2-d, 3-b, 4-a

Answer: a) 1-b, 2-a, 3-c, 4-d
Explanation:

  • Tight Monetary Policy: Involves reducing money supply by increasing interest rates (b).
  • Fiscal Policy: Includes reducing government spending or raising taxes to reduce demand (a).
  • Price Controls: Government-imposed limits on prices to control inflation (c).
  • Supply-Side Measures: Focus on improving productivity to reduce production costs (d).

6. Consider the following statements about deflation:

  1. Deflation refers to a sustained decrease in the general price level of goods and services.
  2. Deflation is beneficial to the economy as it increases the purchasing power of consumers.
  3. Deflation can lead to a decrease in production and employment levels.

Which of the above statements is/are correct? a) 1 and 2 only
b) 1 and 3 only
c) 2 and 3 only
d) 1, 2, and 3

Answer: b) 1 and 3 only
Explanation:

  • Statement 1 is correct: Deflation refers to a sustained drop in prices.
  • Statement 2 is incorrect: Although deflation increases purchasing power, it can harm the economy by reducing business profits, leading to lower production and job losses.
  • Statement 3 is correct: Deflation can lead to reduced production and employment as businesses cut back on investment.

7. Which of the following best describes stagflation?

a) A situation where inflation is rising while the economy is in a state of recession or slow growth.
b) A period of rapidly falling prices and declining production.
c) An increase in inflation accompanied by high levels of employment.
d) A period where the economy experiences no inflation and stable growth.

Answer: a) A situation where inflation is rising while the economy is in a state of recession or slow growth.
Explanation: Stagflation refers to a combination of rising inflation and stagnant or declining economic growth, which can be challenging to manage with traditional economic policies.

8. Match the following terms related to inflation and deflation with their correct descriptions:

TermsDescriptions
1. Disinflationa) A sustained decrease in the general price level of goods and services.
2. Deflationb) A slowdown in the rate of inflation while prices are still rising.
3. Stagflationc) A situation where inflation occurs despite slow or stagnant economic growth.
4. Reflationd) An economic policy aimed at increasing the price level to counter deflation.

Options: a) 1-b, 2-a, 3-c, 4-d
b) 1-a, 2-d, 3-b, 4-c
c) 1-c, 2-d, 3-b, 4-a
d) 1-d, 2-b, 3-c, 4-a

Answer: a) 1-b, 2-a, 3-c, 4-d
Explanation:

  • Disinflation: A slowdown in the rate of inflation (b).
  • Deflation: A sustained fall in prices (a).
  • Stagflation: Inflation combined with slow economic growth (c).
  • Reflation: Policies aimed at raising the price level to counter deflation (d).

9. Consider the following statements about stagflation:

  1. Stagflation occurs when inflation is high, and economic growth is low or stagnant.
  2. Stagflation is typically accompanied by high unemployment levels.
  3. Stagflation can be controlled effectively through expansionary fiscal policy.

Which of the above statements is/are correct? a) 1 and 2 only
b) 2 and 3 only
c) 1 only
d) 1, 2, and 3

Answer: a) 1 and 2 only
Explanation:

  • Statement 1 is correct: Stagflation involves high inflation and stagnant growth.
  • Statement 2 is correct: Stagflation is often accompanied by high unemployment.
  • Statement 3 is incorrect: Expansionary fiscal policy may worsen inflation in stagflation, making it difficult to control.

10. Which of the following policies is most appropriate to combat deflation?

a) Increasing taxes
b) Lowering interest rates
c) Selling government bonds
d) Cutting government spending

Answer: b) Lowering interest rates
Explanation: Lowering interest rates is a tool used by central banks to stimulate borrowing, spending, and investment, which can help combat deflation by increasing demand.

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Here are multiple-choice questions (MCQs) based on Financial Inclusion and Pradhan Mantri Jan Dhan Yojana (PMJDY) in the format you prefer:

1. What is the primary goal of financial inclusion?

a) To increase government revenue through taxes.
b) To provide financial services to all sections of society, especially the underprivileged.
c) To create more banks in urban areas.
d) To promote international trade.

Answer: b) To provide financial services to all sections of society, especially the underprivileged.
Explanation: Financial inclusion aims to provide access to essential financial services like banking, credit, and insurance to all, particularly to those who are underprivileged and excluded from the financial system.

2. Which of the following is a key feature of the Pradhan Mantri Jan Dhan Yojana (PMJDY)?

a) Offering free land to farmers
b) Opening zero-balance savings accounts for all individuals
c) Providing high-interest loans to large corporations
d) Issuing subsidies for agriculture

Answer: b) Opening zero-balance savings accounts for all individuals
Explanation: PMJDY focuses on opening zero-balance savings accounts to promote financial inclusion, providing access to banking services to every citizen.

3. Match the following components of financial inclusion with their descriptions:

Components of Financial InclusionDescriptions
1. Access to Banking Servicesa) Ensuring the availability of credit and loans to underserved areas.
2. Microfinanceb) Availability of basic banking services such as savings and remittances to the public.
3. Insurancec) Providing low-income individuals with financial products like loans and savings.
4. Credit Availabilityd) Protecting individuals from financial risks through health, life, and other insurance schemes.

Options: a) 1-b, 2-c, 3-d, 4-a
b) 1-c, 2-a, 3-b, 4-d
c) 1-a, 2-d, 3-c, 4-b
d) 1-b, 2-a, 3-d, 4-c

Answer: a) 1-b, 2-c, 3-d, 4-a
Explanation:

  • Access to Banking Services: Ensures people have access to basic services like savings accounts and remittances (b).
  • Microfinance: Provides financial products to low-income individuals (c).
  • Insurance: Protects against financial risks (d).
  • Credit Availability: Ensures credit is available in underserved areas (a).

4. Which of the following is NOT a benefit of financial inclusion?

a) Reducing poverty by providing access to financial services
b) Promoting economic growth and development
c) Increasing financial literacy among the population
d) Restricting access to banking services for rural areas

Answer: d) Restricting access to banking services for rural areas
Explanation: Financial inclusion seeks to expand access to banking services in underserved areas, particularly in rural regions, rather than restricting them.

5. Match the following benefits of the Pradhan Mantri Jan Dhan Yojana (PMJDY) with their features:

Benefits of PMJDYFeatures
1. Zero-balance Accounta) Insurance coverage provided to account holders under PMJDY.
2. Rupay Debit Cardb) No minimum deposit required to open an account under PMJDY.
3. Insurance Coveragec) Debit card issued to PMJDY account holders for easy transactions.
4. Overdraft Facilityd) Allows eligible account holders to withdraw more than their balance.

Options: a) 1-b, 2-c, 3-a, 4-d
b) 1-a, 2-b, 3-c, 4-d
c) 1-c, 2-d, 3-b, 4-a
d) 1-d, 2-c, 3-b, 4-a

Answer: a) 1-b, 2-c, 3-a, 4-d
Explanation:

  • Zero-balance Account: No minimum deposit required to open an account (b).
  • Rupay Debit Card: Issued for easy transactions (c).
  • Insurance Coverage: Provided to account holders (a).
  • Overdraft Facility: Allows eligible account holders to withdraw more than their available balance (d).

6. Consider the following statements about Pradhan Mantri Jan Dhan Yojana (PMJDY):

  1. PMJDY provides a life insurance cover for account holders.
  2. It allows the account holders to access credit, insurance, and pension products.
  3. Only individuals with high incomes are eligible for PMJDY accounts.

Which of the above statements is/are correct? a) 1 and 2 only
b) 2 and 3 only
c) 1 only
d) 1, 2, and 3

Answer: a) 1 and 2 only
Explanation:

  • Statement 1 is correct: PMJDY provides life insurance coverage to account holders.
  • Statement 2 is correct: PMJDY also enables access to credit, insurance, and pension schemes.
  • Statement 3 is incorrect: PMJDY is intended for everyone, particularly low-income individuals and those without access to formal banking.

7. What is the insurance cover provided to Pradhan Mantri Jan Dhan Yojana (PMJDY) account holders under the scheme?

a) ₹1,00,000
b) ₹2,00,000
c) ₹5,00,000
d) ₹10,00,000

Answer: b) ₹2,00,000
Explanation: PMJDY provides account holders with an accidental insurance cover of ₹2,00,000.

8. Match the following aspects of financial inclusion with their examples:

Aspects of Financial InclusionExamples
1. Digital Bankinga) Using mobile phones and apps to access banking services.
2. Access to Creditb) Providing loans to underserved populations for entrepreneurship.
3. Pension Schemesc) Ensuring financial security during old age through schemes like Atal Pension Yojana.
4. Financial Literacyd) Educating individuals about managing their finances and saving habits.

Options: a) 1-a, 2-b, 3-c, 4-d
b) 1-b, 2-d, 3-a, 4-c
c) 1-c, 2-a, 3-d, 4-b
d) 1-d, 2-c, 3-b, 4-a

Answer: a) 1-a, 2-b, 3-c, 4-d
Explanation:

  • Digital Banking: Using technology like mobile phones and apps to access banking services (a).
  • Access to Credit: Providing loans to underserved populations (b).
  • Pension Schemes: Ensuring financial security through schemes like Atal Pension Yojana (c).
  • Financial Literacy: Educating people about managing money and saving (d).

9. Consider the following statements regarding financial inclusion:

  1. Financial inclusion promotes inclusive growth by providing access to financial services for all sections of society.
  2. Financial inclusion increases the efficiency of financial markets by reducing the transaction costs.
  3. Financial inclusion does not contribute to reducing income inequality.

Which of the above statements is/are correct? a) 1 and 2 only
b) 2 and 3 only
c) 1 and 3 only
d) 1, 2, and 3

Answer: a) 1 and 2 only
Explanation:

  • Statement 1 is correct: Financial inclusion promotes inclusive growth by providing access to banking, credit, and insurance services to the underprivileged.
  • Statement 2 is correct: Financial inclusion helps reduce transaction costs and increases market efficiency.
  • Statement 3 is incorrect: Financial inclusion helps reduce income inequality by giving all sections of society access to financial services.

10. Which of the following schemes is primarily focused on financial inclusion in India?

a) Pradhan Mantri Fasal Bima Yojana
b) Pradhan Mantri Jan Dhan Yojana
c) Pradhan Mantri Ujjwala Yojana
d) Pradhan Mantri Kaushal Vikas Yojana

Answer: b) Pradhan Mantri Jan Dhan Yojana
Explanation: PMJDY is India’s flagship financial inclusion scheme, aiming to bring every household into the formal financial system by offering banking and insurance services.

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