Class 12 Macroeconomics Chapter 3 MCQ and Important Question answers updated for session 2024-25. Students of CBSE and State board can take help in 12th Economics lesson 3 Money and Banking with intext multiple choice questions with answers and simple explanation.

Class 12 Macroeconomics Chapter 3 MCQ


Barter system refers to the system where

[A]. Goods are exchanged for goods
[B]. Goods are exchanged for money
[C]. Goods are sold to a firm
[D]. None of the above

Bank money is that money which is

[A]. Printed by the government
[B]. Printed by RBI
[C]. Generated in the form of credit creation
[D]. None of the above

Which of the following is not a function of a commercial bank?

[A]. To accept deposits
[B]. To offer loans
[C]. To provide overdraft facilities
[D]. To fix CRR

Central bank is an apex bank of the country that

[A]. Controls the entire banking system of the country
[B]. Issues currency
[C]. Acts as a banker to the government
[D]. All of these

Policy Tools to Control Money Supply

As we know that Reserve Bank is the only institution that can issue currency. When any of the commercial banks need more funds to be able to create more credit, they can go to the market for such funds or to the central bank. Central bank can provide them funds in many ways. Being ready to lend to banks at all times is another important function of Reserve Bank of India (Central Bank), and due to this it is also said to be the lender of the last resort. The RBI controls the supply of money in the economy in various ways. The tools used by RBI to control it can be quantitative or qualitative. The tools which control the extent of money supply by changing the CRR or bank rate or open market operation are called quantitative tools. Qualitative tools include persuasion by the central bank in order to make commercial banks encourage or discourage lending which is done through moral suasion, margin requirement, etc.

Class 12 Macro Economics Chapter 3 Important Question answers

How does banking system creates money?

When people deposit their savings or money in the bank, bank gives interest on that money to the depositors. As everyone doesn’t take out their total savings from the bank, it holds quite a sum of money. The bank lends that money to the people who wants to borrow on interest. The interest charged by the bank to the borrower is higher than the interest bank pays to the depositors. The difference between these interests is the earning of the bank.

Who is called ‘The lender of last resort’?

When commercial banks need fore funds in order to be able to create more credit, for such purpose they can go to the market or to the Reserve Bank (Central Bank). This role of RBI, that of being able to lend to banks at all times is important function of Reserve Bank, and due to it is said to be the lender of last resort.

What is a reverse repurchase agreement?

Instead of outright sale of securities, the central bank may sell the securities through an agreement which has a specification about the date and price at which it will be repurchased. This type of agreement is called reverse repurchase agreement.

What are the assets and liabilities of a bank?

For a bank, apart from buildings, furniture, etc., its assets are loans given to public, and reserves. Reserves are the deposits which commercial banks keep with the central bank. Liabilities of a bank are the deposits of the people which they keep in it.

How does the barter exchange works?

In barter system, people exchange goods or services with each other. Like if you have a surplus of rice and you want clothing in exchange of that. Then you have to find a person who has clothing surplus and wants rice in its exchange.

Open Market Operations

Another important tool by which the RBI influences the money supply is Open Market Operations. It refers to buying and selling of bonds issued by the government in the open market. This purchase and sale are entrusted to the central bank on behalf of the government. There are two types of open market operations: Outright and Repo. Outright open market operations are permanent in nature; when the central banks buy these securities, it is without any promise to sell them later. Similarly, when it sells these securities, it is without any promise to buy them back later. However, there is another type of operation in which when the central bank buys the security, this agreement of purchase also has specification about date and price of resale of these securities. This type of agreement is called repurchase agreement or repo.

Class 12 Macro Economics Chapter 3 Multiple Choice Questions


The minimum percentage of a bank’s total deposits which is required to be kept with the RBI is called

[A]. CRR
[B]. Repo rate
[C]. SLR
[D]. Reverse repo rate

Which of the following is related to barter system of exchange

[A]. Dispute of price
[B]. Limited exchange
[C]. Both a and b
[D]. None of the above

In which year India got its central bank

[A]. 1930
[B]. 1947
[C]. 1935
[D]. 1950

Which of the following is not related to banking organisation?

[A]. Bank rate
[B]. Credit creation
[C]. Fiscal deficit
[D]. Cash reverse ratio
Class 12 Economics Topic – Demonetisation

Demonetisation was a brand-new initiative taken by the Govt. of India in Nov 2016 to tackle the matter of corruption, black cash, terrorism, and circulation of faux currency within the economy. Previous currency notes of ₹500 and ₹1000 were not legal tender. New currency notes of ₹500 and ₹200 were launched. The general public were suggested to deposit previous currency notes in their checking account until 31st December, 2016 with none declaration and till 31st March, 2017 with the RBI with declaration.

In addition to avoid an entire breakdown and money crunch, government had allowed solely exchange of ₹4000 old currency by the new currency per day per person. until 12th December, 2016, previous currency notes were acceptable as tender at fuel pumps, government hospitals, and for state dues like taxes, power bills, etc. This move received each appreciation and criticism. There have been long queues outside banks and ATM booths. The shortage of currency in circulation had an adverse impact on the economic activities.

Electronic Payment Technologies

However, the troublesome phase improved with time and normalcy returned. This move had positive impact additionally. Thanks to it an oversized variety of individuals were brought within the tax range. The savings of a private were channelised into the formal financial set-up. As a result, banks have additional resources at their disposal which may be used to provide more loans at lower interest rates.

It is an indication of a state’s call to put curb on black cash, showing that tax evasion can now not be tolerated. Evasion can end in monetary penalties and social condemnation. Tax compliance can improve and corruption can decrease. Termination of previous currency may additionally facilitate tax administration differently, by shifting transactions out of the cash economy into the formal payment system. Households and corporations have begun to shift from money to electronic payment technologies.

Last Edited: October 24, 2022