Money and Banking online Test - 25

Money supply refers to the total stock of money of all types ( currency as well as demand deposits) held by the people of a country at a given point of time. Money supply includes both currency held by the public in terms of coins and paper notes as well as demand deposits of the people with the commercial bank.

Moral suasion refers to the persuasion and pressure which central bank exert on the commercial banks in order to follow the directives of its monetary policy. These are generally not ignored by the member banks as it comes directly from the upper authority. The banks are advised to restrict the flow of credit during inflation and be liberal in lending during deflation.  

Money multiplier = {(1/LRR)*100}

Money as a standard of value or measure of value refers to that function of money which helps in determining the value of goods and services in the economy. Money is taken as the common denominator while measuring the value of goods and services in monetary terms according to which prices are measured for all commodities in the economy. 

Cash Reserves Ratio (CRR) refers to the proportion of total deposits of the commercial banks which they must keep as reserves with the central bank in the form of cash. It just acts as an additional reserve which the central bank holds by the commercial bank. So if there is any cut in the cash reserve ratio then it does not affect the monetary liability of the central bank. 

According to J.M. Keynes, inflation refers to the expansion in the money supply relative to the supply of goods and services in the economy which resulted in the constant and appreciable increase in the general price level of such goods and services. Due to this increase in the supply of money, the purchasing power in the economy increases which results in inflation. 

Central bank is an apex bank that regulates and controls the entire banking system of a country. The central bank lends money to government and the commercial banks when they are facing liquidity crunch or any type of insolvency. The central bank are the last resort to provide loans to the government and commercial banks against any type of collateral. Since Reserve Bank of India(RBI) is the central bank of India, it is also known as the lender of the last resort in India. 

Money supply refers to the total stock of money of all types ( currency as well as demand deposits) held by the people of a country at a given point of time. 

Money supply is measured in several ways which includes M1, M2, M3 and M4  measurement of money supply. Every measurement has it own definition with different components varying from most liquid to most rigid form. 

Demand deposits refers to the deposits of the people which is held by the commercial banks which can be withdrawn on demand. These are included in M1 and M2 measurement of money supply as they are considered the liquid money supply in the economy. 

Cash Reserves Ratio (CRR) refers to the proportion of total deposit of the commercial banks which they must keep as reserves with the central bank in the form of cash deposits. In other words, these are the cash deposits of commercial banks with the central bank which they have to deposit as a legal requirement with central bank. The ratio is fixed by the central bank and is varied from time to time to control the supply of money in the economy depending upon the prevailing situation of inflation or deflation.