UPSC Indian Economy – Chapter 8: Money and Money Supply (28 MCQs)
UPSC Indian Economy – Chapter 8: Money and Money Supply (28 MCQs) – 27 questions, subject: Indian Economy. Every question has the correct answer with a one-line explanation; tap "Show Answer". Free practice for TNPSC, UPSC, SSC, Bank and RRB exams – Shanmugam IAS Academy, Coimbatore.
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Which function of money removes the need for a double coincidence of wants?
Correct Answer: B [Medium of exchange]
Explanation:
As a generally accepted medium of exchange, money lets a seller sell to anyone, without finding a buyer who has exactly what he wants.
Under the RBI Act, 1934, the RBI's sole right to issue bank notes is given by:
Correct Answer: A [Section 22]
Explanation:
Section 22 of the RBI Act, 1934 gives the Reserve Bank the sole right to issue bank notes in India.
Coins in India are issued by:
Correct Answer: D [the Government of India]
Explanation:
under the Coinage Act, 2011.
Under the minimum reserve system, the RBI must hold at least how much gold?
Correct Answer: B [Rs 115 crore]
Explanation:
Under the minimum reserve system of 1957, at least Rs 115 crore of the Rs 200 crore minimum must be held in gold.
Narrow money (M1) consists of:
Correct Answer: A [currency with the public, demand deposits with banks and "other" deposits with the RBI]
Explanation:
The RBI defines M1 as currency with the public plus demand deposits with banks plus 'other' deposits with the RBI.
Broad money (M3) equals:
Correct Answer: D [M1 plus time deposits with banks]
Explanation:
The RBI defines broad money M3 as narrow money M1 plus time deposits with banks.
Which one of the following lowers the money multiplier?
Correct Answer: D [An increase in cash held by the public]
Explanation:
less money stays in banks to be lent.
If banks keep a reserve ratio of 20 per cent and the public holds no extra cash, an initial deposit of Rs 1,000 can support total deposits of:
Correct Answer: B [Rs 5,000]
Explanation:
1,000 ÷ 0.20.
According to the RBI's data for 30 September 2026, the largest component of broad money (M3) is:
Correct Answer: C [time deposits with banks]
Explanation:
about three-quarters.
In Fisher's equation MV = PT, if V and T are constant and M doubles, the price level will:
Correct Answer: B [double]
Explanation:
With V and T constant, P = MV ÷ T moves in the same proportion as M, so doubling M doubles the price level.
According to Keynes, the speculative demand for money:
Correct Answer: B [falls when the interest rate rises]
Explanation:
holding money costs more interest.
Consider the following statements about the Rs 2,000 note:
1. Its withdrawal from circulation was announced on 19 May 2023.
2. It ceased to be legal tender from that date.
3. It was introduced after demonetisation in November 2016.
Which of the statements given above are correct?
Correct Answer: A [1 and 3 only]
Explanation:
it continues to be legal tender.
The National Financial Switch, which links ATMs across India, is run by:
Correct Answer: C [the National Payments Corporation of India]
Explanation:
NPCI runs the National Financial Switch besides UPI and RuPay cards.
The retail digital rupee (e₹-R) pilot began on:
Correct Answer: D [1 December 2022]
Explanation:
The RBI began the retail digital rupee pilot on 1 December 2022, a month after the wholesale pilot of 1 November 2022.
In India, the tax rate on income from the transfer of virtual digital assets, introduced by the Finance Act, 2022, is:
Correct Answer: C [30 per cent]
Explanation:
The Finance Act, 2022 taxes income from transferring virtual digital assets at a flat 30 per cent, with 1 per cent TDS on transfers.
Assertion (A): Indian currency notes are fiat money.
Reason (R): Above the minimum reserve, notes are not backed by gold in proportion; their value rests on their legal-tender status.
Correct Answer: A [Both A and R are true, and R is the correct explanation of A]
Explanation:
R explains A.
Which of the following are liabilities of the Reserve Bank of India?
1. Currency notes in circulation
2. The digital rupee
3. Savings deposits of households in commercial banks
Select the correct answer:
Correct Answer: B [1 and 2 only]
Explanation:
Currency notes and the digital rupee are issued by the RBI and are its liabilities; household savings deposits are liabilities of commercial banks.
Using the RBI's data for 30 September 2026 (M3 about Rs 337.7 lakh crore; reserve money about Rs 52.8 lakh crore), the money multiplier is about:
Correct Answer: C [6.4]
Explanation:
337.7 ÷ 52.8.
Arrange the following in chronological order:
1. Withdrawal of Rs 2,000 notes from circulation announced
2. Minimum Reserve System adopted for note issue
3. Pilot of the wholesale digital rupee (e₹) begins
4. Demonetisation of Rs 500 and Rs 1,000 notes
Correct Answer: C [2-4-3-1]
Explanation:
1957, 2016, 2022, 2023.
Consider the following statements in respect of the digital rupee :
1. It is a sovereign currency issued by the Reserve Bank of India (RBI) in alignment with its monetary policy.
2. It appears as a liability on the RBI's balance sheet.
3. It is insured against inflation by its very design.
4. It is freely convertible against commercial bank money and cash.
Which of the statements given above are correct?
Correct Answer: D [1, 2 and 4]
Explanation:
a CBDC is not protected against inflation.
With reference to the Central Bank digital currencies, consider the following statements:
1. It is possible to make payments in a digital currency without using US dollar or SWIFT system.
2. A digital currency can be distributed with a condition programmed into it such as time-frame for spending it.
Which of the statements given above is/are correct?
Correct Answer: C [Both 1 and 2]
Explanation:
CBDCs can be programmable and used across borders.
The money multiplier in an economy increases with which one of the following?
Correct Answer: C [Increase in the banking habit of the people]
Explanation:
more deposits stay in banks to be lent (the same idea was asked in 2019).
If you withdraw Rs. 1,00,000 in cash from your Demand Deposit Account at your bank, the immediate effect on aggregate money supply in the economy will be
Correct Answer: D [to leave it unchanged]
Explanation:
only the form of money changes.
Which one of the following statements correctly describes the meaning of legal tender money?
Correct Answer: B [The money which a creditor is under compulsion to accept in settlement of his claims.]
Explanation:
Legal tender is money that a creditor is legally bound to accept when a debtor offers it in settlement of a debt.
With reference to 'Bitcoins', sometimes seen in the news, which of the following statements is/are correct?
1. Bitcoins are tracked by the Central Banks of the countries.
2. Anyone with a Bitcoin address can send and receive Bitcoins from anyone else with a Bitcoin address.
3. Online payments can be sent without either side knowing the identity of the other.
Select the correct answer using the code given below.
Correct Answer: B [2 and 3 only]
Explanation:
Bitcoins pass directly between Bitcoin addresses without central-bank tracking, and payments can be made without either side revealing its identity.
Supply of money remaining the same when there is an increase in demand for money, there will be
Correct Answer: B [an increase in the rate of interest]
Explanation:
money becomes scarcer relative to demand.
Consider the following liquid assets:
1. Demand deposits with the banks
2. Time deposits with the banks
3. Savings deposits with the banks
4. Currency
The correct sequence of these assets in the decreasing order of liquidity is
Correct Answer: D [4-1-3-2]
Explanation:
Currency is the most liquid, then demand deposits, then savings deposits; time deposits are least liquid until they mature.
➤ Full notes, maps, tables, a reason for every option and Mains PYQs – U15 · Indian Economy (UPSC book, ₹249): www.shanmugamiasacademy.in/study-materials/upsc-indian-economy
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