RMS CA FOUNDATION
M.M = 45 M.M =45 Time = 45minutes
1. 1. The Quantity Theory of Money is mainly associated with which economist?
a) John Maynard Keynes
b) Irving Fisher
c) Milton Friedman
d) Adam Smith
2. According to the Quantity Theory of Money (QTM), the main factor affecting the price
level is:
a) Interest rate
b) Quantity of money in circulation
c) Unemployment rate
d) National income
3. In the Fisherian equation of exchange, which of the following correctly represents it?
a) M + V = P/T
b) M × V = P × T
c) M × P = V × T
d) M × T = V / P
4. In Keynesian theory, the demand for money is divided into how many motives?
a) One
b) Two
c) Three
d) Four
5. Which is NOT a motive for holding money as stated by Keynes?
a) Transaction motive
b) Precautionary motive
c) Speculative motive
d) Investment motive
6. Friedman's modern restatement of the Quantity Theory of Money treats demand for
money as primarily dependent on:
a) Rate of consumption
b) Wealth and expected returns on various assets
c) Liquidity preference
d) Price controls
7. Which theory emphasizes the role of money as a store of value in the demand for
money?
a) Keynesian theory
b) Quantity Theory
c) Post-Keynesian theory
d) None of the above
8. According to the Classical approach, changes in the value or purchasing power of
money are determined by:
a) Fiscal deficit
b) Quantity of money in circulation
c) Changes in demand for credit
d) Level of employment
9. What is the main objective of monetary policy in India?
A) Increasing imports
B) Ensuring price stability and economic growth
C) Promoting monopoly
D) Increasing black money circulation
10. Which of the following tools is a qualitative method of monetary policy?
A) Bank Rate
B) Open Market Operations
C) Credit Rationing
D) Cash Reserve Ratio
11. An increase in CRR by the RBI will result in:
A) Decrease in money supply
B) Increase in bank lending
C) Decrease in repo rate
D) Increase in consumer income
12. Which instrument is used by RBI to inject liquidity in the banking system?
A) Increasing SLR
B) Selling government securities
C) Buying government securities
D) Increasing CRR
13. Which of the following is a direct instrument of monetary policy?
A) Moral Suasion
B) Repo Rate
C) Margin Requirement
D) Credit Rationing
14. When RBI reduces the repo rate, it indicates:
A) Tighter monetary policy
B) An attempt to reduce money supply
C) Encouragement for borrowing and investment
D) Increase in inflation targeting
15. 15. Open Market Operations refer to:
A) RBI lending money to farmers
B) Government issuing new currency
C) Sale and purchase of government securities by RBI
D) Reduction in fiscal deficit
16. Which of the following is NOT a goal of monetary policy?
A) Price stability
B) Full employment
C) Increasing fiscal deficit
D) Economic growth
17. Tight monetary policy is used to:
A) Increase inflation
B) Increase money supply
C) Reduce inflation
D) Boost exports
18. The difference between Repo Rate and Reverse Repo Rate is called:
A) Liquidity Adjustment Margin
B) Bank Spread
C) Monetary Spread
D) Interest Rate Corridor
19. Which institution formulates the monetary policy in India?
A) Ministry of Finance
B) NITI Aayog
C) Reserve Bank of India
D) SEBI
20. Select the odd one out related to monetary policy tools:
A) Repo Rate
B) Statutory Liquidity Ratio
C) Direct Taxes
D) Cash Reserve Ratio
21. What happens when the RBI sells securities in the open market?
A) Money supply increases
B) Inflation rises
C) Money supply contracts
D) Bank lending increases
22. Which of the following is an example of a quantitative measure of monetary policy?
A) Moral suasion
B) Credit rationing
C) Open market operations
D) Margin requirements
23. Liquidity Adjustment Facility (LAF) includes which of the following?
A) CRR and SLR
B) Repo and Reverse Repo
C) Bank Rate and MSF
D) Fiscal Deficit and Inflation
24. In the Cambridge Equation M = kPY, if 'k' rises due to fear of recession, what impact will
it have on the velocity of circulation of money?
A) Velocity increases
B) Velocity remains constant
C) Velocity decreases
D) No effect on velocity
25. If the rate of interest is extremely low and people expect it to rise, what will happen
according to Keynesian theory?
A) Money demand falls
B) Money demand becomes zero
C) People hold more money – liquidity trap occurs
D) Money supply becomes irrelevant
26. 26. Suppose nominal GDP rises but the demand for money remains constant. According
to the Cambridge approach, what can be inferred about the value of 'k'?
A) k remains constant
B) k increases
C) k decreases
D) k becomes irrelevant
27. If people expect prices to fall in the future, what happens to the demand for money
according to the Cambridge approach?
A) People reduce their cash holdings
B) People increase their cash holdings
C) Demand becomes speculative
D) Velocity increases
28. Assertion (A): High-powered money has a greater multiplier effect on money supply.
Reason (R): High-powered money is the sum of net demand and time liabilities of banks.
1. Both A and R are true, and R is the correct explanation of A
2. Both A and R are true, but R is not the correct explanation of A
3. A is true, but R is false
4. A is false, but R is true
29. Inflation targeting means maintain inflation upto
A) 2%
B) 6%
C) 4%
D) 10%
30. If banks hold excess reserves of ₹5 crore in addition to the required reserves and the
reserve ratio is 10%, what is the effective reserve ratio when total deposits are ₹100
crore?
A) 10%
B) 5%
C) 15%
D) 20%
31. If CRR = 5%, and SLR = 20%, what is the total reserve requirement (assuming both
apply on Net Demand and Time Liabilities)?
A) 5%
B) 15%
C) 20%
D) 25%
32. If the reserve requirement is 20%, and ₹1000 crore of high-powered money is injected
into the economy, what is the increase in money supply?
A) ₹1000 crore
B) ₹4000 crore
C) ₹5000 crore
D) ₹200 crore
33. Suppose currency with the public is ₹400 crore, demand deposits are ₹600 crore, and
time deposits are ₹1000 crore. What is the value of M1?
A) ₹1000 crore
B) ₹2000 crore
C) ₹600 crore
D) ₹400 crore
34. 34. Money supply is ₹2,500 crore and monetary base is ₹500 crore. If RBI raises the
CRR, which of the following will most likely happen?
A) Money multiplier will rise
B) Money supply will increase
C) Money multiplier will fall
D) No impact on money multiplier
35. If the reserve ratio is 16.67%, what is the money multiplier?
A) 4
B) 5
C) 6
D) 3
CH – 10
36. Assertion (A): NEP 1991 helped increase efficiency in the economy but also led to a rise
in income inequality
Reason (R): Liberalisation disproportionately benefited the private sector and urban
areas over rural and agricultural sectors.
a) Both A and R are true and R is the correct explanation of A
b) Both A and R are true but R is not the correct explanation of A
c) A is true but R is false
d) A is false but R is true
37. Assertion (A): Disinvestment under NEP 1991 aimed at reducing the fiscal burden of
the government. Reason
(R): Selling loss-making public sector units to private players automatically ensures
public welfare.
a) Both A and R are true and R is the correct explanation of A
b) Both A and R are true but R is not the correct explanation of A
c) A is true but R is false
d) A is false but R is true
38 . Which of the following statements are true regarding the impact of NEP 1991?
1. It led to greater integration of Indian economy with the world.
2. Agricultural productivity increased rapidly post NEP.
3. Industrial licensing was almost completely abolished.
4. Public sector enterprises expanded in size and number
. a) Only 1 and 3
b) Only 2 and 4
c) Only 1, 2, and 4
d) Only 1, 3, and 4
39. The term license raj refers to
a. System of royality for mining
b. Regulation and licensing in industrial policy
c. Licensing of agricultural sector
d. Licensing for exports
40. Which of the following is not a reason for adopting economic planning in India after
independence?
a. Regional imbalance
b. Political instability
c. Low level of per capita income
d. Poor industrial base
41. To improve air quality which campaign was launched by India----
a. Eco friendly vehicles compaign
b. Shoonya campaigm
c. E – NAM
d. E – Amrit
42. The term Hindu rate of growth was used to describe
a. Rapid industrial growth c. low economic growth
b. Religious restrictions d. agricultural dependence
43. The IPR classified industries in how many categories?
a. 1 b. 2 c. 3 d. 4
44. Which economic strategy was followed for 2nd & 3rd 5 year plans?
a. Gandhian model c. Keynesian model
b. Mahalanobis model d. Early liberalization
45. Name the commodity which was mainly imported by India under PL – 480
a. Wheat b. Rice c. Wheat & Rice d. Pulses & Rice
