Demand deposits are equal to cash deposits of the people with the Commercial Banks
False, Demand deposits are equal to sum total of primary deposits (i.e. cash deposits) and Secondary Deposits (i.e. deposits which arise due to loans).
Commerce School
Student Community
Archives Answers
Answer
Higher the Legal Reserve Ratio, greater would be the credit creation in the economy
False, The higher the value of the Legal Reserve Ratio, the lower the value of the money multiplier, and less money is created by the banking system. Explanation:- Credit or Money Multiplier is inversely related to LRR. Credit (Money) Multiplier…
Repo Rate is fixed by the Central Bank, whereas, Reverse Repo Rate is fixed by the Commercial Banks
False, Both repo rate and reverse repo rate are fixed by the Central Bank. Explanation:- Repo Rate and Reverse Repo Rate are the two tools of monetary policy. It is the policy adopted by the Central Bank of an economy…
To increase the money supply in the economy, central bank reduces the margin requirements
True, A fall in margin requirements enhances the borrowing capacity of the public, which raises the money supply in the economy. Explanation:- Margin Requirements: Margin is the difference between the amount of the loan and the market value of the…
RBI acts as the banker to the central government and commercial banks act as banker to the state governments
False, RBI acts as the banker to the central government as well as state governments. Explanation:- Banker to the Government: The Reserve Bank of India acts as a banker, agent, and financial advisor to the Central Government and all the…
Loans offered by commercial banks are equal to deposits received by them
False, Through the function of money creation, commercial banks are able to offer loans (or create credit), which are in far excess of deposits received Explanation:- Loans offered are for more excess than the initial deposits. It depends on the…
Size of money multiplier is given by the inverse of LRR
True, Money Multiplier is inversely related to LRR as Money Multiplier = 1/LRR Additional Information:- Money multiplier is the number by which total deposits can increase due to a given change in deposits. It is inversely related to the legal…
There is an inverse relationship between legal reserve ratio (LRR) and value of money multiplier
True, Money Multiplier is inversely related to LRR as Money Multiplier = 1/LRR Additional Information:- Money multiplier is the number by which total deposits can increase due to a given change in deposits. It is inversely related to the legal…
Cash reserve ratio and statutory liquidity ratio are fixed by the commercial banks themselves
False, They are fixed by Central Bank. Explanation:- Cash Reserve ratio and statutory liquidity ratio are the components of Legal Reserve Ratio. These are quantitative tools of monetary policy of central bank to control the money supply and credit creation.
Purchase of securities in the open market by the commercial banks reduces their credit crediting power
True, The purchase of securities decreases the reserves of commercial banks, which reduces their credit-creating power. Explanation:- When commercial banks purchase securities from the public, The public withdraws their money from the deposits. It decreases the cash reserves with the…