money and banking

Which of the following is a step that the central bank will take to encourage greater investment in the economy?

• 1. It will look to increase the cash reserve ratio

• 1. It will look to reduce the cash reserve ratio

• 1. It will look to increase the bank rate

• 1. It will look to sell the government securities in the open market

1. Which of the following is a step that the central bank will take to increase the overall availability of credit?

• 1. It will sell the government securities in the market

• 1. It will buy more government securities from the market

• 1. It will raise the reverse repo rate

• 1. It will raise the repo rate

1. Which of the following statements represents the main function of the central bank in a country?

• 1. It is responsible for the regulation over the supply of money in the market

• 1. It is responsible for the issuance of notes within the country

• 1. It acts as a banker both to the government and to other banks in the country

• 1. All of the above

1. Which of the statements gives a true picture of the effect of the central bank selling securities in the market?

• 1. The credit creation capacity of commercial banks will fall

• 1. The credit creation capacity of commercial banks will rise

• 1. The credit creation capacity of commercial banks may rise or fall

• 1. There is no effect on the credit creation capacity of commercial banks

1. Which of the statements gives a true picture of the effect of lowering the cash reserve ratio by the central bank of a country?

• 1. The lending capacity of commercial banks will increase

• 1. The lending capacity of commercial banks will decrease

• 1. The lending capacity of commercial banks may increase or decrease

• 1. There is no effect on the lending capacity of commercial banks

1. Which of the statements gives an accurate picture of the effect of the rise of the reverse repo rate by the central bank of a country?

• 1. The demand for goods and services in the country will decrease

• 1. The demand for goods and services in the country will increase

• 1. The demand for goods and services in the country may increase or decrease

• 1. There is no effect on the demand for goods and services in the country

1. Which of the following statements is true about credit creation by banks?

• 1. Banks create credit on the basis of their total assets

• 1. Banks create credit on the basis of their total deposits

• 1. Banks create credit on the basis of their total securities

• 1. Banks create credit out of nothing