G12 ECO BOARD EXAM PRACTICE 3

What is meant by 'circular flow of income'?

• Money flowing only in one direction

• Income earned is spent back into the economy, returning to its source

• Government collecting and redistributing money

• Banks circulating currency notes

In a two-sector economy model, what components are involved?

• Government and Households

• Firms and Foreign sector

• Households and Firms

• Government and Foreign sector

What happens to banks' lending capacity when Cash Reserve Ratio (CRR) increases?

• Lending capacity increases

• Lending capacity decreases

• Lending capacity remains unchanged

• Banks stop lending completely

In the money multiplier process, if initial deposit is ₹1000 and CRR is 10%, what will be the total deposit created?

• ₹1000

• ₹5000

• ₹10000

• ₹100000

Which is NOT a function of the Reserve Bank of India?

• Banker to government

• Direct retail banking for public

• Lender of last resort

• Controller of money supply

What happens to exports when domestic currency depreciates?

• Exports decrease

• Exports increase

• Exports remain unchanged

• Exports become zero

What is meant by 'managed floating' exchange rate system?

• Complete government control over exchange rates

• Completely free market determined rates

• Central bank intervention when needed while generally allowing market forces

• Fixed exchange rates with periodic adjustments

Which component is NOT part of current account in Balance of Payments?

• Export of goods

• Foreign investment

• Services trade

• Unilateral transfers

In Balance of Payments, when is an item considered a credit (positive) entry?

• When foreign exchange leaves the country

• When foreign exchange enters the country

• When domestic currency is used

• When there is no monetary transaction

What is the difference between FDI and Portfolio Investment?

• FDI is short-term while portfolio is long-term

• FDI involves control over management while portfolio doesn't

• FDI is only in manufacturing sector

• Portfolio investment is illegal in many countries