Class 12 Economics Chapter 3 – Money and Banking Important Questions
These Money and Banking Important Questions cover the most important MCQs, one-word questions, assertion and reason questions and descriptive questions from NCERT Class 12 Economics Chapter 3. The questions are prepared from NCERT concepts and important exam-oriented topics for quick revision and practice.
This page is useful for UPSC, SSC, PSC, Railway, Banking, CUET, CBSE and Class 12 Economics preparation, helping students revise important concepts related to money, banking, credit creation, functions of commercial banks, central banking and monetary systems.
Multiple Choice Questions (MCQs)
These MCQs from Money and Banking are designed for quick objective revision and competitive exam preparation. The questions cover important banking concepts, functions of money, RBI functions, credit creation and monetary systems discussed in the NCERT chapter.
MCQ 1
Money primarily functions as:
- A. A production factor
- B. A medium of exchange
- C. A natural resource
- D. A capital good
Answer: B. A medium of exchange
Page Reference: Page 34
MCQ 2
Which of the following is NOT a function of money?
- A. Medium of exchange
- B. Store of value
- C. Unit of account
- D. Direct barter
Page Reference: Page 35
MCQ 3
The barter system suffered mainly because of:
- A. Excess production
- B. Lack of transportation
- C. Double coincidence of wants problem
- D. Government control
Answer: C. Double coincidence of wants problem
Page Reference: Page 34
MCQ 4
Currency issued by the government is called:
- A. Commodity money
- B. Fiat money
- C. Metallic money
- D. Barter money
Page Reference: Page 35
MCQ 5
Which institution has the authority to issue currency in India?
- A. SBI
- B. NABARD
- C. RBI
- D. Commercial banks
Page Reference: Page 39
MCQ 6
Demand deposits are included in:
- A. Physical capital
- B. Money supply
- C. Government expenditure
- D. Tax revenue
Page Reference: Page 36
MCQ 7
Commercial banks create credit through:
- A. Tax collection
- B. Accepting deposits and lending
- C. Printing currency
- D. Foreign trade
Answer: B. Accepting deposits and lending
Page Reference: Page 38
MCQ 8
The reserve ratio refers to:
- A. Ratio of exports to imports
- B. Fraction of deposits banks keep as reserves
- C. Government expenditure ratio
- D. Currency issued by RBI
Answer: B. Fraction of deposits banks keep as reserves
Page Reference: Page 38
MCQ 9
The central bank of India is:
- A. SBI
- B. RBI
- C. ICICI
- D. PNB
Page Reference: Page 39
MCQ 10
Which function is performed by the Reserve Bank of India?
- A. Retail trading
- B. Currency issuance
- C. Manufacturing goods
- D. Agricultural production
Answer: B. Currency issuance
Page Reference: Page 39
One-Word / Very Short Answer Questions
These one-word and factual questions help students quickly revise important banking concepts, money supply measures and central banking functions from the chapter. The section is especially useful for UPSC, SSC, PSC, CUET and other objective examinations.
- What is the primary function of money?
Answer: Medium of exchange - Which problem existed in the barter system?
Answer: Double coincidence of wants - What type of money is issued by government authority?
Answer: Fiat money - Which institution issues currency in India?
Answer: RBI - Which deposits are included in money supply?
Answer: Demand deposits - Which banks create credit?
Answer: Commercial banks - What is the minimum reserve kept by banks called?
Answer: Reserve ratio - Which bank acts as banker to the government?
Answer: RBI - What is the process of increasing money supply through lending called?
Answer: Credit creation - Which function of money measures value?
Answer: Unit of account
Assertion and Reason Questions
These assertion and reason questions from Money and Banking help students develop conceptual clarity and analytical understanding of money supply, banking functions and monetary systems. They are highly useful for board exams and competitive examinations.
Question 1
Assertion (A): Money acts as a medium of exchange.
Reason (R): Money eliminates the problem of double coincidence of wants.
Options:
- A. Both A and R are true and R is the correct explanation
- B. Both A and R are true but R is not the correct explanation
- C. A is true but R is false
- D. A is false but R is true
Question 2
Assertion (A): Demand deposits are included in money supply.
Reason (R): Demand deposits can be used for transactions through cheques.
Options:
- A. Both A and R are true and R is the correct explanation
- B. Both A and R are true but R is not the correct explanation
- C. A is true but R is false
- D. A is false but R is true
Question 3
Assertion (A): Commercial banks create credit.
Reason (R): Banks lend a portion of deposits while keeping reserves.
Options:
- A. Both A and R are true and R is the correct explanation
- B. Both A and R are true but R is not the correct explanation
- C. A is true but R is false
- D. A is false but R is true
Important Exam-Based Concept Questions
These important descriptive and analytical questions from Money and Banking are useful for board examinations and competitive exams. The questions focus on conceptual understanding, banking systems, money supply and monetary analysis from the NCERT chapter.
- Explain the meaning and functions of money.
- Discuss the limitations of the barter system.
- Explain the concept of fiat money.
- Differentiate between commodity money and fiat money.
- Explain the process of credit creation by commercial banks.
- Discuss the functions of commercial banks.
- Explain the role and functions of the Reserve Bank of India.
- What is money supply? Explain its components.
- Explain the concept of demand deposits.
- Discuss the relationship between reserve ratio and credit creation.
- Explain the meaning and importance of high-powered money.
- Differentiate between central bank and commercial bank.
- Explain how banks contribute to economic development.
- Discuss the role of RBI in controlling money supply.
- Explain the importance of money in a modern economy.
Quick Revision Points
- Money acts as a medium of exchange.
- Barter system suffered due to double coincidence of wants.
- Functions of money include:
- Medium of exchange
- Store of value
- Unit of account
- Standard of deferred payment
- Fiat money is issued by government authority.
- Demand deposits are included in money supply.
- Commercial banks create credit through lending.
- Reserve ratio determines credit creation ability.
- RBI is the central bank of India.
- RBI functions include:
- Currency issuance
- Banker to government
- Control of money supply
- Monetary policy implementation
- High-powered money is controlled mainly by RBI.
- Money multiplier depends on reserve ratio.
- Demand deposits can be withdrawn through cheques.