II CIA - 2025 Monetary Economics

According to James Tobin’s portfolio analysis, individuals hold money as part of their portfolio due to:

• a) Speculative motives only

• b) Risk and return considerations

• c) Transaction motives only

• d) Government regulations

In Tobin’s theory, the demand for money increases when:

• a) The expected return on alternative assets increases

• b) The risk associated with holding alternative assets increases

• c) Inflation is high and stable

• d) Interest rates on bonds rise significantly

Tobin’s portfolio theory suggests that individuals allocate their wealth among assets based on:

• a) Maximization of transaction benefits

• b) A trade-off between risk and return

• c) The money multiplier effect

• d) Government intervention in financial markets

According to Tobin’s model, what happens when interest rates increase?

• a) Demand for money increases

• b) Demand for bonds increases

• c) Demand for money remains unchanged

• d) Inflationary pressure rises

1. Which of the following is a primary function of financial intermediaries?
   
   
   
   

• 1. a) Printing money for the economy

• 1. b) Facilitating the flow of funds between savers and borrowers

• 1. c) Controlling fiscal policy

• 1. d) Regulating international trade

1. One key effect of financial intermediation is:
   
   

• 1. a) Decreasing overall liquidity in the economy

• 1. b) Increasing transaction costs for borrowers

• 1. c) Enhancing capital allocation and economic efficiency

• 1. d) Eliminating the need for central banks

1. Non-Banking Financial Institutions (NBFIs) differ from banks because they:
   
   
   
   

• 1. a) Do not accept deposits from the public

• 1. b) Provide only short-term loans

• 1. c) Are not involved in financial activities

• 1. d) Operate only in rural areas

1. Which of the following is an example of a Non-Banking Financial Institution (NBFI)?
   
   
   
   

• 1. a) Commercial bank

• 1. b) Investment fund

• 1. c) Central bank

• 1. d) Treasury department

1. How do financial intermediaries contribute to economic growth?
   

• 1. a) By hoarding funds to prevent inflation

• 1. b) By reducing investment opportunities

• 1. c) By facilitating savings and investment

• 1. d) By restricting credit supply to businesses

1. Monetary policy primarily aims to control inflation, stabilize the currency, and promote economic growth.