This page provides complete NCERT Class 12 Introductory Macroeconomics Chapter 3 questions, including MCQs, one-word and descriptive questions. All questions are extracted line-by-line from NCERT for full syllabus coverage and exam preparation.
The chapter then discusses the demand for money, which arises from two motives: the transaction motive (to conduct day-to-day purchases, positively related to income and price level) and the speculative motive (to avoid capital losses from falling bond prices when interest rates are expected to rise, inversely related to interest rates).
The velocity of circulation (number of times a unit of money changes hands) is introduced, along with the quantity theory relationship: v × Mᵈ = T. The chapter then explains the supply of money, comprising currency (issued by RBI) and bank deposits. Commercial banks accept deposits and lend to borrowers, earning profit through the interest rate spread.
The credit creation process is illustrated through the story of Lala the goldsmith, who lent out deposited gold assuming not all depositors would withdraw at once. This process is formalised with the balance sheet of a bank (Assets = Reserves + Loans; Liabilities = Deposits). The Cash Reserve Ratio (CRR): the percentage of deposits banks must keep as reserves : acts as a limit to credit creation.
The money multiplier is 1/CRR; with CRR of 20%, Rs 100 in reserves can support Rs 500 in deposits. The RBI controls money supply through quantitative tools: changing CRR, Open Market Operations (buying/selling government bonds), and the bank rate (now mainly repo rate). Repo and reverse repo operations have become the main monetary policy tools.
The chapter also defines high-powered money (currency issued by RBI that forms the base for credit creation), the liquidity trap (where speculative demand for money becomes infinite at very low interest rates), and fiat money (legal tender with no intrinsic value). Various measures of money supply are presented: M1 (narrow money = currency + demand deposits), M2 (adds post office savings), M3 (broad money = M1 + time deposits), and M4 (includes all post office deposits).
A Box on demonetisation (November 2016) discusses its impact on black money, tax compliance, and the shift to digital payments. Tables show that India’s M3 (broad money) grew from about Rs 3.4 lakh crore in 1999-2000 to over Rs 272 lakh crore in 2024-25.
Get MCQs, One-Liners, and Descriptive Questions mapped to exact page numbers. Designed for effortless memorization for Boards & Civil Services.
Get MCQs, One-Liners, and Descriptive Questions mapped to exact page numbers. Designed for effortless memorization for Boards & Civil Services.
Money facilitates exchanges by overcoming which major drawback of barter?
Which of the following is NOT a function of money?
When prices of all commodities increase, the value of money in terms of any commodity
What is the purchasing power of money called when prices rise?
In which year was the Reserve Bank of India established?
In the goldsmith Lala’s story, if Lala had 100 kg gold deposits and lent 25 kg gold, the effective paper receipts acting as money became
If CRR is 20%, with deposits of Rs 100, a bank must keep reserves of
If CRR is 20% and deposits are Rs 500, the required reserves are
Given CRR of 20%, the money multiplier is
If RBI increases the reserve ratio from 20% to 25%, with Rs 100 in reserves, the maximum deposits supported become
When RBI buys a government bond in the open market, it pays by cheque, which
When RBI sells a government bond, it leads to
Repo rate is the interest rate at which
In a two-person economy with firm paying Rs 100 salary and worker spending it all on firm’s output, the total transaction demand for money is
In the above economy, the velocity of circulation of money is
If a bond with face value Rs 100 offers Rs 10 at end of first year and Rs 110 at end of second year, and market interest rate rises from 5% to 6%, the bond price
In a liquidity trap, the speculative demand for money is
According to Table 3.4, India’s M3 (Broad Money) in 2024-25 was approximately
Which measure of money supply includes savings deposits with Post Office savings banks?
Currency notes in India are issued by the
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Exchange of commodities without the mediation of money is called? Page 36
What is the term for the deterioration in the purchasing power of money due to a general increase in prices? Page 37
What is the full form of RBI? Page 38
What is the full form of CRR? Page 40
What is the full form of SLR? Page 40
What is the term for deposits which commercial banks keep with the RBI? Page 39
What is the formula for the money multiplier? Page 42
What is the term for buying and selling of government bonds by the central bank? Page 42
What is the interest rate at which RBI lends to commercial banks through repurchase agreements called? Page 43
What is the interest rate at which RBI withdraws money through sale of securities with buyback agreement called? Page 43
What is the term for a situation where the speculative demand for money becomes infinite? Page 47
What is the term for currency notes and coins that have no intrinsic value but are accepted because of government guarantee? Page 47-48
What is the term for money that cannot be refused by any citizen for settlement of any transaction? Page 48
What is the narrowest measure of money supply in India? Page 48
What is the most commonly used measure of money supply in India, also called aggregate monetary resources? Page 48
What is the highest measure of money supply in India? Page 48
What happened to old Rs 500 and Rs 1000 notes in November 2016? Page 49
What is the term for the number of times a unit of money changes hands during a unit period? Page 44
What is the average money holding of a person who earns Rs 100 on the first day of the month and runs it down evenly to zero by month end? Page 43
Get MCQs, One-Liners, and Descriptive Questions mapped to exact page numbers. Designed for effortless memorization for Boards & Civil Services.
This post was last modified on May 8, 2026 8:00 pm