20 multiple-choice (MCQ / objective) questions from this chapter, in the common exam-style shapes. Every question comes with an explanation along with the answer, so you remember why the option is correct, not just which one it is.
Syllabus note
In CBSE 2026-27 the unit ‘Money and Banking’ carries 6 marks. The demand for money (transaction and speculative motives) and M2 to M4 are not in the CBSE syllabus, but the UP, Bihar, Rajasthan and MP boards teach from the same NCERT book; such questions are marked. The (½) and (1) marks in numerical answers show step marks as in the CBSE marking scheme.
1 Direct Questions
Direct Questions
- 1 markWhat is the main drawback of the barter system?
(A) Lack of double coincidence of wants(B) A very high rate of interest(C) Absence of a central bank(D) Over-production of goods - 1 markMoney can perform the store of value function well only when:
(A) the price level is rising fast(B) the value of money is sufficiently stable(C) the rate of interest is zero(D) the CRR is very high - 1 markWho issues coins in India?
(A) The Reserve Bank of India(B) The State Bank of India(C) The Finance Commission(D) The Government of India - 1 markWhich role of the RBI is called ‘lender of last resort’?
(A) Keeping the government’s accounts(B) Issuing currency notes(C) Holding foreign exchange reserves(D) Being ready to lend to banks at all times - 1 markIn the demonetisation of November 2016, which old notes ceased to be legal tender?
(A) ₹500 and ₹2000(B) ₹500 and ₹1000(C) ₹100 and ₹500(D) ₹1000 and ₹2000 - 1 markThe initial deposit is ₹500 and the CRR is 20%. How much total deposits can the banking system create?
(A) ₹2,000(B) ₹2,500(C) ₹100(D) ₹625
2 Assertion-Reason
Assertion-Reason
- 1 markAssertion (A): Barter requires a double coincidence of wants.
Reason (R): Under barter, goods are exchanged directly for goods without money.
(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 - 1 markAssertion (A): Commercial banks create money.
Reason (R): Commercial banks issue currency notes.
(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 - 1 markAssertion (A): When the RBI buys government bonds in the open market, the money supply falls.
Reason (R): Open market operations mean the buying and selling of government bonds.
(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 - 1 markAssertion (A): Margin requirement is a qualitative tool of the RBI.
Reason (R): Through it the central bank makes banks encourage or discourage lending.
(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
3 Match the Following
Match the Following
- 1 markMatch List I (function of money) with List II (example).
List I: (i) Medium of exchange (ii) Unit of account (iii) Store of value (iv) Standard of deferred payments
List II: (1) Saying a wristwatch is worth ₹500 (2) Buying wheat by paying rupees instead of rice (3) Fixing next year’s loan repayment in rupees (4) Keeping savings as money for future use
(A) i-1, ii-2, iii-4, iv-3(B) i-2, ii-4, iii-1, iv-3(C) i-2, ii-1, iii-4, iv-3(D) i-3, ii-1, iii-2, iv-4
4 Statement-Based Questions
Statement-Based Questions
- 1 markConsider these statements.
(i) Under the CRR, banks keep a fixed percentage of deposits as reserves with the central bank.
(ii) Under the SLR, banks keep a fixed percentage of deposits in liquid form with themselves.
(A) Both are true(B) Only (i) is true(C) Only (ii) is true(D) Both are false - 1 markConsider these statements.
(i) Money supply is a stock variable.
(ii) Interbank deposits that a bank holds in another bank are counted in money supply.
(A) Only (i) is true(B) Both are true(C) Only (ii) is true(D) Both are false
5 Arrange in the Correct Order
Arrange in the Correct Order
- 1 markThe RBI raises the repo rate. Identify the correct sequence of effects.
1. Demand for loans by people and firms falls
2. Borrowing by banks from the RBI becomes costlier
3. Money supply falls
4. Banks raise their lending rates
(A) 4-2-1-3(B) 2-4-1-3(C) 2-1-4-3(D) 1-2-4-3 - 1 markArrange these demonetisation events in chronological order.
1. Last date for depositing old notes with the RBI with a declaration
2. Old ₹500 and ₹1000 notes ceased to be legal tender
3. Last date for depositing old notes in bank accounts without a declaration
4. Last date for old notes being accepted at petrol pumps and for government dues
(A) 2-3-4-1(B) 4-2-3-1(C) 2-4-3-1(D) 2-4-1-3
6 Fill in the Blanks
Fill in the Blanks
- 1 markIn a bank’s balance sheet: Assets = Reserves + ______
(A) Deposits(B) Loans(C) Net worth(D) Spread
7 Odd One Out
Odd One Out
- 1 markThree of these are functions of the RBI. Which one is not?
(A) Issuing currency notes(B) Acting as banker to the government(C) Accepting savings deposits from the general public(D) Acting as the bankers’ bank
8 Passage-Based Questions
Passage-Based Questions
Passage
(Hypothetical news) The central bank of a country called Sumeru, in its monetary policy statement, raised the cash reserve ratio from 4% to 5% and also raised the repo rate. The bank said that credit in the economy was growing too fast and it wanted to slow it down.
- 1 markAccording to the passage, what happens to the money multiplier because of the change in CRR?
(A) It rises from 20 to 25(B) It rises from 4 to 5(C) It falls from 25 to 20(D) It stays unchanged
Passage
According to Table 3.5 of the NCERT book (RBI data), currency in circulation in India was ₹16,63,463 crore in 2015-16. It fell to ₹13,35,266 crore in 2016-17 and rose again to ₹18,29,348 crore in 2017-18.
- 1 markAccording to the passage, by roughly what percentage did currency in circulation fall between 2015-16 and 2016-17?
(A) 24.6%(B) 19.7%(C) 10.0%(D) 80.3%
9 True / False
True / False
- 1 markConsider these statements.
(i) At a CRR of 20%, reserves of ₹100 can support deposits of ₹500.
(ii) In this case the total loans given by the bank will be ₹500.
(iii) At the end, required reserves become equal to the initial deposit.
(A) Only (ii) is true(B) (i), (ii) and (iii) are all true(C) Only (i) and (ii) are true(D) Only (i) and (iii) are true
Answer Key and Explanations
Direct Questions
- (a) Under barter you must find a person who has exactly what you want and wants exactly what you have; this double coincidence of wants rarely exists.
- (b) The book: the value of money must be sufficiently stable; a rising price level erodes its purchasing power.
- (d) The book: currency notes are issued by the RBI, but coins are issued by the Government of India.
- (d) The book: because it is ready to lend to banks at all times, the central bank is the lender of last resort.
- (b) The book: old ₹500 and ₹1000 notes were no longer legal tender; new ₹500 and ₹2000 notes were launched. Option (a) is the new notes.
- (b) Multiplier = 1 ÷ 0.2 = 5; total deposits = 500 × 5 = ₹2,500. ₹2,000 is only the new credit, ₹100 comes from multiplying by the CRR, ₹625 from 500 ÷ 0.8.
Assertion-Reason
- (a) Both true. Because there is no money, each person needs a partner who wants exactly his good; R explains A.
- (c) A is true: loans create new deposits. R is false: only the RBI issues currency notes.
- (d) A is false: the RBI pays by cheque, reserves rise and money supply increases. R is a true definition.
- (a) Both true. The book: qualitative tools make banks discourage or encourage lending, e.g. moral suasion and margin requirement; R explains A.
Match the Following
- (c) Exchange = rupees for wheat; unit of account = value in rupees; store of value = savings; deferred payments = future loan repayment.
Statement-Based Questions
- (a) Both are true (the book and the CBSE supplementary material).
- (a) (i) is true: the total stock of money at a point of time. (ii) is false: ‘net’ means only the public’s deposits; interbank deposits are excluded.
Arrange in the Correct Order
- (b) First borrowing by banks becomes costlier (2), they raise lending rates (4), demand for loans falls (1), and money supply falls (3).
- (c) November 2016 (2), 12 December 2016 (4), 31 December 2016 (3), 31 March 2017 (1).
Fill in the Blanks
- (b) The book: Assets = Reserves + Loans; Liabilities = Deposits.
Odd One Out
- (c) Accepting deposits from the public is a commercial bank’s function; the other three belong to the central bank.
Passage-Based Questions
- (c) At 4% the multiplier is 1 ÷ 0.04 = 25; at 5% it is 1 ÷ 0.05 = 20. A higher CRR lowers the multiplier; ‘4 to 5’ are the CRR percentages, not the multiplier.
- (b) Fall = 16,63,463 − 13,35,266 = ₹3,28,197 crore; 3,28,197 ÷ 16,63,463 × 100 ≈ 19.7%. 24.6% comes from dividing by the new year’s figure.
True / False
- (d) (i) true: 20% of 500 = 100. (ii) false: loans are ₹400. (iii) true: reserves of ₹100 = initial deposit.
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