27 + Interview Questions in MONETARY ECONOMICS IN GENERAL AWARENESS Page 1 InterviewSolution

1.	Fisher’s Quantity Theory of money is based on the essential function of money as ………… (a) Measure of value (b) Store of value (c) Medium of exchange (d) Standard of deferred payment
Answer» (c) Medium of exchange

Discussion

2.	“Money can be anything that is generally acceptable as a means of exchange and that the same time acts as a measure and a store of value” , This definition was given by ………… (a) Crowther (b) A.C.Pigou (c) F.A.Walker (d) Francis Bacon
Answer» Correct Answer is: (a) Crowther

Discussion

3.	Debit card is an example of ………(a) Currency (b) Paper currency (c) Plastic money (d) Money
Answer» Debit card is an example of Plastic money.

Discussion

4.	The study of alternating fluctuations in business activity is referred to in Economics as …… (a) Boom (b) Recession (c) Recovery (d) Trade cycle
Answer» The study of alternating fluctuations in business activity is referred to in Economics as Trade cycle.

Discussion

5.	Which of the following is correctly matched:(a) The purchasing power of currency – Falling (b) Monetary measures are adopted by – State bank (c) The turning point from boom is – Inflation (d) Money supply means the total – Inflation amount of money in – World
Answer» (a) The purchasing power of currency – Falling

Discussion

6.	State Cambridge equations of value of money?
Answer» Cambridge Approach (Cash Balances Approach): 1. Marshall’s Equation: The Marshall equation is expressed as: M = KPY Where M is the quantity of money Y is the aggregate real income of the community . P is Purchasing Power of money K represents the fraction of the real income which the public desires to hold in the form of money. Thus, the price level P = M/KY or the value of money (The reciprocal of price level) is 1/P = KY/M The value of money in terms of this equation can be found out by dividing the total quantity of goods which the public desires to holdout of the total income by the total supply of money. According to Marshall’s equation, the value of money is influenced not only by changes in M, but also by changes in K. 2. Keynes’Equation: Keynes equation is expressed as: n = pk (or) p = n / k Where n is the total supply of money p is the general price level of consumption goods. k is the total quantity of consumption units the people decide to keep in the form of cash, Keynes indicates that K is a real balance, because it is measured in terms of consumer goods. According to Keynes, peoples’ desire to hold money is unaltered by monetary authority. So, price level and value of money can be stabilized through regulating quantity of money (n) by the monetary authority. Later, Keynes extended his equation in the following form: n = p (k + rk’) or p = n / (k + rk’) Where, n = total money supply p = price level of consumer goods k = peoples’ desire to hold money in hand (in terms of consumer goods) in the total income of them r = cash reserve ratio k’ = community’s total money deposit in banks, in terms of consumers goods. In this extended equation also, Keynes assumes that, k, k’ and r are constant. In this situation, price level (P) is changed directly and proportionately changing in money volume (n).

6.

State Cambridge equations of value of money?

Answer»

Cambridge Approach (Cash Balances Approach):

1. Marshall’s Equation:

The Marshall equation is expressed as:

M = KPY

Where

M is the quantity of money Y is the aggregate real income of the community . P is Purchasing Power of money

K represents the fraction of the real income which the public desires to hold in the form of money.

Thus, the price level P = M/KY or the value of money (The reciprocal of price level) is 1/P = KY/M

The value of money in terms of this equation can be found out by dividing the total quantity of goods which the public desires to holdout of the total income by the total supply of money. According to Marshall’s equation, the value of money is influenced not only by changes in M, but also by changes in K.

2. Keynes’Equation:

Keynes equation is expressed as:

n = pk (or) p = n / k

Where

n is the total supply of money p is the general price level of consumption goods.

k is the total quantity of consumption units the people decide to keep in the form of cash, Keynes indicates that K is a real balance, because it is measured in terms of consumer goods. According to Keynes, peoples’ desire to hold money is unaltered by monetary authority. So, price level and value of money can be stabilized through regulating quantity of money (n) by the monetary authority.

Later, Keynes extended his equation in the following form:

n = p (k + rk’) or p = n / (k + rk’)

Where,

n = total money supply p = price level of consumer goods

k = peoples’ desire to hold money in hand (in terms of consumer goods) in the total income of them

r = cash reserve ratio

k’ = community’s total money deposit in banks, in terms of consumers goods.

In this extended equation also, Keynes assumes that, k, k’ and r are constant. In this situation, price level (P) is changed directly and proportionately changing in money volume (n).

Discussion

7.	Which of the following is correctly matched:(a) Store of value – Liquidity cash(b) Deflation – Rise in price (c) Trade cycle – Narrow money (d) Quantity theory of money – J.M. Keynes
Answer» (d) Quantity theory of money – J.M. Keynes

Discussion

8.	Bank rate is lowered during – (a) Inflation (b) Price (c) Employment (d) Deflation
Answer» Correct Answer is: (d) Deflation

Discussion

9.	Which of the following is correctly matched:(a) Barter System – Technology (b) Gold Standard – Standard currency is directly linked with gold (c) Plastic money – Money value (d) Paper money – Smart card
Answer» (b) Gold Standard – Standard currency is directly linked with gold

Discussion

10.	Which of the following is not correctly matched:(a) Money supply – Central Bank (b) Dear money policy – During Inflation (c) Value of money – Purchasing power (d) Black money – Narrow money
Answer» (d) Black money – Narrow money

Discussion

11.	Which of the following is correctly matched:(a) The Marshall’s equation – MV = PT (b) Cash Reserve Ratio – CRR (c) Statutory Liquidity cash – SLC (d) Functions of money – Money supply
Answer» (b) Cash Reserve Ratio – CRR

Discussion

12.	Which of the following is correctly matched:(a) Depression – Starting stage (b) Recession – Turning point from boom (c) Boom – Economic activities (d) Inflation – Hectic activity
Answer» (b) Recession – Turning point from boom

Discussion

13.	Which of the following is not correctly matched:(a) Inflation – Rise in price (b) Deflation – Fall in price (c) Hyper Inflation – India (d) Hyper deflation – Phases of Trade cycle
Answer» (c) Hyper Inflation – India

Discussion

14.	Which of the following is correctly matched:(a) Medium of exchange – CRR (b) Cash Reserve Ratio – Gold standard (c) Goods exchange for goods – Barter system (d) Full weighted legal tender – Plastic money
Answer» (c) Goods exchange for goods – Barter system

Discussion

15.	(i) MV = PT equation stands for volume of Trade. (ii) Fisher’s Quantity Theory of money is based on the essential function of money as measure of value.(a) Both (i) and (ii) are true (b) Both (i) and (ii) are false (c) (i) is true but (ii) is false (d) (i) is false but (ii) is true
Answer» (b) Both (i) and (ii) are false

Discussion

16.	(i) The study of alternating fluctuations in business activity is referred to in Economics as Trade cycle.(ii) During depression the level of economic activity becomes extremely high.(a) Both (i) and (ii) are true (b) Both (i) and (ii) are false (c) (i) is true but (ii) is false (d) (i) is false but (ii) is true
Answer» (c) (i) is true but (ii) is false

Discussion

17.	(i) Inflation is taxation without legislation was said by Milton Friedman. (ii) Money is the most liquid form of capital.(a) Both (i) and (ii) are true (b) Both (i) and (ii) are false (c) (i) is true but (ii) is false (d) (i) is false but (ii) is true
Answer» (a) Both (i) and (ii) are true

Discussion

18.	A. Galloping Inflation – (i) Money Act B. M3 is called – (ii) Hyperinflation C. Measure of value – (iii) Broad money D. Deflation Codes – (iv) Bank rate Codes:(a) A (i) B (ii) C (iv) D (iii) (b) A (iv) B (i) C (iii) D (ii) (c) A (iii) B (iv) C (ii) D (i) (d) A (ii) B (iii) C (i) D (iv)
Answer» (d) A (ii) B (iii) C (i) D (iv)

Discussion

19.	Which of the following is not correctly matched:(a) Creeping Inflation – Price rise slow moving (b) Walking Inflation – Price rise moderately (c) Running Inflation – Price rise rapidly running(d) Galloping Inflation – Price rise very slow
Answer» (d) Galloping Inflation – Price rise very slow

Discussion

20.	Which of the following is not correctly matched:(a) M – Money supply / Quantity of money – (b) V – Velocitu of money (c) P – Price level (d) T – Price rise slow moving
Answer» (d) T – Price rise slow moving

Discussion

21.	Which of the following is not correctly matched:(a) Currency Deposit Ratio – CDR (b) Reserve Deposit Ratio – RDR (c) Cash Reserve Ratio – CRR (d) Statutory Liquidity Ratio – SRL
Answer» (d) Statutory Liquidity Ratio – SRL

Discussion

22.	(i) “The purchasing power of money” was a book published by Irving Fisher in 1911. (ii) The general form of equation given by Fisher is M = KPY.(a) Both (i) and (ii) are true (b) Both (i) and (ii) are false(c) (i) is true but (ii) is false (d) (i) is false but (ii) is true
Answer» (c) (i) is true but (ii) is false

Discussion

23.	A. Cheap money policy – (i) Purchasing money B. Prices pushed – (ii) Creeping inflation C. Value of money – (iii) Low rate of interest D. Selective credit control – (iv) Moral suasion Codes:(a) A (iii) B (ii) C (i) D (iv) (b) A (ii) B (i) C (iv) D (iii) (c) A (iv) B (iii) C (ii) D (i)(d) A (i) B (iv) C (iii) D (ii)
Answer» (a) A (iii) B (ii) C (i) D (iv)

Discussion

24.	The four different phases of trade cycle is referred to as(a) Regression (b) Recession (c) Depression (d) Recovery
Answer» (a) Regression

Discussion

25.	Contingent functions are called (a) Basis of the credit system (b) Money facilitates distribution of state income (c) Money’helps to equalize marginal utility (d) Money increases productivity of capital
Answer» (b) Money facilitates distribution of state income

Discussion

26.	Define “Currency symbol”?
Answer» Currency Symbol Rs The new symbol designed by D.Udaya Kumar, a post graduate of IIT Bombay was finally selected by the Union cabinet on 15th July, 2010. The new symbol, is an amalgamation of Devanagri ‘Ra’ and the Roman ‘R’ without the stem. The symbol of India rupee came into use on 15th July, 2010. After America, Britain, Japan, Europe Union. India is the 5th country to accept a unique currency symbol.

Discussion

27.	Write RBI publishes information alternative measures of money supply?
Answer» RBI publishes information for four alternative measures of Money supply, namely M₂ , M₂ and M₃ and M₄ M₁ = Currency, coins and demand deposits M₂ = M₁ + Savings deposits with post office savings banks M₃ = M₂ + Time deposits of all commercial and cooperative banks. M₄ = M₃ + Total deposits with Post offices.

27.

Write RBI publishes information alternative measures of money supply?

Answer»

RBI publishes information for four alternative measures of Money supply, namely M₂ , M₂ and M₃ and M₄

M₁ = Currency, coins and demand deposits

M₂ = M₁ + Savings deposits with post office savings banks

M₃ = M₂ + Time deposits of all commercial and cooperative banks.

M₄ = M₃ + Total deposits with Post offices.

Discussion

Explore topic-wise InterviewSolutions in .

Fisher’s Quantity Theory of money is based on the essential function of money as ………… (a) Measure of value (b) Store of value (c) Medium of exchange (d) Standard of deferred payment

“Money can be anything that is generally acceptable as a means of exchange and that the same time acts as a measure and a store of value” , This definition was given by ………… (a) Crowther (b) A.C.Pigou (c) F.A.Walker (d) Francis Bacon

Debit card is an example of ………(a) Currency (b) Paper currency (c) Plastic money (d) Money

The study of alternating fluctuations in business activity is referred to in Economics as …… (a) Boom (b) Recession (c) Recovery (d) Trade cycle

Which of the following is correctly matched:(a) The purchasing power of currency – Falling (b) Monetary measures are adopted by – State bank (c) The turning point from boom is – Inflation (d) Money supply means the total – Inflation amount of money in – World

State Cambridge equations of value of money?

Which of the following is correctly matched:(a) Store of value – Liquidity cash(b) Deflation – Rise in price (c) Trade cycle – Narrow money (d) Quantity theory of money – J.M. Keynes

Bank rate is lowered during – (a) Inflation (b) Price (c) Employment (d) Deflation

Which of the following is correctly matched:(a) Barter System – Technology (b) Gold Standard – Standard currency is directly linked with gold (c) Plastic money – Money value (d) Paper money – Smart card

Which of the following is not correctly matched:(a) Money supply – Central Bank (b) Dear money policy – During Inflation (c) Value of money – Purchasing power (d) Black money – Narrow money

Which of the following is correctly matched:(a) The Marshall’s equation – MV = PT (b) Cash Reserve Ratio – CRR (c) Statutory Liquidity cash – SLC (d) Functions of money – Money supply

Which of the following is correctly matched:(a) Depression – Starting stage (b) Recession – Turning point from boom (c) Boom – Economic activities (d) Inflation – Hectic activity

Which of the following is not correctly matched:(a) Inflation – Rise in price (b) Deflation – Fall in price (c) Hyper Inflation – India (d) Hyper deflation – Phases of Trade cycle

Which of the following is correctly matched:(a) Medium of exchange – CRR (b) Cash Reserve Ratio – Gold standard (c) Goods exchange for goods – Barter system (d) Full weighted legal tender – Plastic money

(i) MV = PT equation stands for volume of Trade. (ii) Fisher’s Quantity Theory of money is based on the essential function of money as measure of value.(a) Both (i) and (ii) are true (b) Both (i) and (ii) are false (c) (i) is true but (ii) is false (d) (i) is false but (ii) is true

(i) Inflation is taxation without legislation was said by Milton Friedman. (ii) Money is the most liquid form of capital.(a) Both (i) and (ii) are true (b) Both (i) and (ii) are false (c) (i) is true but (ii) is false (d) (i) is false but (ii) is true

A. Galloping Inflation – (i) Money Act B. M3 is called – (ii) Hyperinflation C. Measure of value – (iii) Broad money D. Deflation Codes – (iv) Bank rate Codes:(a) A (i) B (ii) C (iv) D (iii) (b) A (iv) B (i) C (iii) D (ii) (c) A (iii) B (iv) C (ii) D (i) (d) A (ii) B (iii) C (i) D (iv)

Which of the following is not correctly matched:(a) Creeping Inflation – Price rise slow moving (b) Walking Inflation – Price rise moderately (c) Running Inflation – Price rise rapidly running(d) Galloping Inflation – Price rise very slow

Which of the following is not correctly matched:(a) M – Money supply / Quantity of money – (b) V – Velocitu of money (c) P – Price level (d) T – Price rise slow moving

Which of the following is not correctly matched:(a) Currency Deposit Ratio – CDR (b) Reserve Deposit Ratio – RDR (c) Cash Reserve Ratio – CRR (d) Statutory Liquidity Ratio – SRL

(i) “The purchasing power of money” was a book published by Irving Fisher in 1911. (ii) The general form of equation given by Fisher is M = KPY.(a) Both (i) and (ii) are true (b) Both (i) and (ii) are false(c) (i) is true but (ii) is false (d) (i) is false but (ii) is true

The four different phases of trade cycle is referred to as(a) Regression (b) Recession (c) Depression (d) Recovery

Contingent functions are called (a) Basis of the credit system (b) Money facilitates distribution of state income (c) Money’helps to equalize marginal utility (d) Money increases productivity of capital

Define “Currency symbol”?

Write RBI publishes information alternative measures of money supply?