Important top 50 questions on Money for CUET, Class 12, and various exam preparation
Here are 50 multiple-choice questions (MCQs) on various topics related to money.
- What is the primary function of money?
a) To store value
b) To facilitate barter
c) To provide interest
d) To control inflation
Answer: a) To store value - Which of the following is considered legal tender in the United States?
a) Bitcoin
b) Gold coins
c) Federal Reserve Notes (U.S. dollars)
d) Euro
Answer: c) Federal Reserve Notes (U.S. dollars) - The debasement of currency refers to:
a) Increasing the purity of coins
b) Reducing the value of a currency by decreasing its metal content
c) Printing more money to combat inflation
d) Converting digital currency to physical currency
Answer: b) Reducing the value of a currency by decreasing its metal content - Which of the following is an example of non-legal tender money?
a) Credit card
b) Check
c) Gold coins
d) Bitcoin
Answer: d) Bitcoin - What is the main limitation of the barter system?
a) Lack of a common measure of value
b) Easy divisibility of goods
c) Efficient allocation of resources
d) Elimination of double coincidence of wants
Answer: a) Lack of a common measure of value - Which measure of money supply includes the most liquid forms of money?
a) M1
b) M2
c) M3
d) M4
Answer: a) M1 - In a fractional reserve banking system, banks:
a) Hold 100% of deposits in reserve
b) Can lend out more money than they have in deposits
c) Are not allowed to lend money to customers
d) Can only lend money to the government
Answer: b) Can lend out more money than they have in deposits - What is the term for the interest rate at which banks lend money to each other overnight?
a) Prime rate
b) Discount rate
c) Federal funds rate
d) Mortgage rate
Answer: c) Federal funds rate - Which of the following is not a function of central banks?
a) Controlling inflation
b) Regulating commercial banks
c) Printing currency
d) Conducting monetary policy
Answer: c) Printing currency - The process of creating money by making loans is known as:
a) Fractional reserve banking
b) Monetary deflation
c) Quantitative easing
d) Fiscal policy
Answer: a) Fractional reserve banking - Which country was the first to introduce paper currency?
a) China
b) India
c) Greece
d) Egypt
Answer: a) China - Which type of inflation occurs when the overall price level increases due to an increase in production costs?
a) Demand-pull inflation
b) Cost-push inflation
c) Hyperinflation
d) Stagflation
Answer: b) Cost-push inflation - The gold standard is a monetary system where:
a) Currency has intrinsic value in the form of gold
b) Currency is backed by the government’s promise to pay gold
c) Gold is used as a medium of exchange
d) There is no relation to gold in the monetary system
Answer: a) Currency has intrinsic value in the form of gold - Which of the following is an example of fiat money?
a) Gold coins
b) Silver certificates
c) U.S. dollars
d) Bitcoin
Answer: c) U.S. dollars - What is the primary tool used by central banks to control the money supply?
a) Open market operations
b) Fiscal policy
c) Exchange rate manipulation
d) Printing more money
Answer: a) Open market operations - Which of the following is not a component of M2 money supply?
a) Currency in circulation
b) Savings accounts
c) Time deposits
d) Checking accounts
Answer: c) Time deposits - Hyperinflation is typically caused by:
a) A sudden increase in the money supply
b) A decrease in consumer spending
c) A stable economy
d) A gold standard
Answer: a) A sudden increase in the money supply - What is the term for the amount of money that a commercial bank must hold in reserve?
a) Reserve requirement
b) Excess reserves
c) Discount rate
d) Federal funds rate
Answer: a) Reserve requirement - Which economist is known for his theory of the quantity theory of money?
a) John Maynard Keynes
b) Adam Smith
c) Milton Friedman
d) Karl Marx
Answer: c) Milton Friedman - In a deflationary spiral, prices:
a) Decrease rapidly
b) Remain stable
c) Increase gradually
d) Fluctuate randomly
Answer: a) Decrease rapidly - Which of the following is a characteristic of commodity money?
a) Easily portable
b) Limited supply
c) Backed by the government
d) Easily counterfeit
Answer: b) Limited supply - What is the primary goal of monetary policy?
a) Maximizing employment
b) Minimizing government spending
c) Controlling inflation
d) Promoting economic growth
Answer: c) Controlling inflation - Which of the following is not a function of commercial banks?
a) Accepting deposits
b) Making loans to customers
c) Issuing currency
d) Facilitating payments
Answer: c) Issuing currency - What is the term for the interest rate that central banks charge commercial banks for borrowing money?
a) Prime rate
b) Discount rate
c) Federal funds rate
d) Mortgage rate
Answer: b) Discount rate - Which type of money has intrinsic value, such as gold or silver coins?
a) Commodity money
b) Fiat money
c) Digital money
d) Crypto money
Answer: a) Commodity money - The Bretton Woods system was established after which major historical event?
a) World War I
b) The Great Depression
c) World War II
d) The Cold War
Answer: c) World War II - Which of the following is an example of near money?
a) Currency in circulation
b) Checking accounts
c) Gold coins
d) Stocks Answer: b) Checking accounts - The concept of “velocity of money” refers to:
a) The speed at which banks process transactions
b) The rate at which money changes hands in the economy
c) The rate of inflation
d) The speed of electronic money transfers
Answer: b) The rate at which money changes hands in the economy - What is the term for a situation in which an economy experiences a prolonged period of low economic growth and high unemployment?
a) Recession
b) Depression
c) Stagflation
d) Inflation
Answer: b) Depression - In a modern economy, most money exists in the form of:
a) Coins and banknotes
b) Digital and electronic records
c) Barter goods
d) Gold and silver bullion
Answer: b) Digital and electronic records - Which of the following is NOT a component of M3 money supply?
a) Currency in circulation
b) Checking accounts
c) Time deposits
d) Large-denomination time deposits
Answer: a) Currency in circulation - What is the primary tool of fiscal policy used by governments to influence the economy?
a) Open market operations
b) Interest rate manipulation
c) Taxation and government spending
d) Reserve requirements
Answer: c) Taxation and government spending - What term describes the situation where a central bank raises interest rates to combat inflation?
a) Quantitative easing
b) Tightening monetary policy
c) Easy monetary policy
d) Negative interest rates
Answer: b) Tightening monetary policy - Which country experienced hyperinflation in the early 20th century, leading to trillion-dollar banknotes?
a) Germany
b) Japan
c) France
d) United Kingdom
Answer: a) Germany - The Fisher Effect suggests that an increase in expected inflation will lead to:
a) A decrease in nominal interest rates
b) An increase in nominal interest rates
c) No change in nominal interest rates
d) A decrease in real interest rates
Answer: b) An increase in nominal interest rates - What is the term for money that is accepted as payment for goods and services but is not issued or backed by a government?
a) Cryptocurrency
b) Digital currency
c) Legal tender
d) Commodity money
Answer: a) Cryptocurrency - What is the main purpose of the Federal Deposit Insurance Corporation (FDIC)?
a) Regulating stock markets
b) Insuring bank deposits up to a certain limit
c) Printing currency
d) Controlling interest rates
Answer: b) Insuring bank deposits up to a certain limit - Which of the following is NOT a function of money?
a) Unit of account
b) Store of value
c) Medium of exchange
d) Government control
Answer: d) Government control - Which monetary policy tool involves the central bank buying or selling government securities in the open market?
a) Reserve requirements
b) Discount rate
c) Open market operations
d) Fiscal policy
Answer: c) Open market operations - What is the term for the difference between a country’s exports and imports of goods and services?
a) Budget deficit
b) Trade deficit
c) Current account balance
d) National debt
Answer: c) Current account balance - The concept of “seigniorage” refers to:
a) The process of making counterfeit money
b) The cost of producing paper currency
c) The profit a government makes by issuing money
d) The interest rate set by a central bank
Answer: c) The profit a government makes by issuing money - Which of the following is a characteristic of a fiat money system?
a) Money has intrinsic value
b) Money is backed by a physical commodity
c) Money has limited supply
d) Money is declared legal tender by the government
Answer: d) Money is declared legal tender by the government - What is the term for a situation where the government spends more money than it collects in revenue?
a) Budget surplus
b) Fiscal deficit
c) Trade surplus
d) Inflation
Answer: b) Fiscal deficit - Which of the following is NOT one of the functions of the U.S. Federal Reserve?
a) Conducting monetary policy
b) Regulating and supervising banks
c) Issuing currency
d) Setting tax rates
Answer: d) Setting tax rates - The term “Gresham’s Law” suggests that:
a) Bad money drives out good money
b) Good money drives out bad money
c) Money has no impact on economic activity
d) Money should be abolished in favor of barter
Answer: a) Bad money drives out good money - Which of the following is an example of a leading economic indicator?
a) GDP growth rate
b) Unemployment rate
c) Consumer price index (CPI)
d) Stock market performance
Answer: d) Stock market performance - What is the term for a sudden and severe economic downturn characterized by a collapse in asset prices and widespread financial instability?
a) Recession
b) Stagflation
c) Depression
d) Financial crisis
Answer: d) Financial crisis - Which of the following is NOT a function of the World Bank?
a) Providing loans to developing countries for infrastructure projects
b) Promoting economic development and poverty reduction
c) Regulating international trade
d) Offering technical assistance to countries in need
Answer: c) Regulating international trade - What is the term for the increase in the overall price level of goods and services over time?
a) Deflation
b) Stagflation
c) Inflation
d) Recession
Answer: c) Inflation - Which of the following is an example of a lagging economic indicator?
a) Industrial production
b) Retail sales
c) Consumer confidence
d) Unemployment rate
Answer: d) Unemployment rate