Money, Banking and Monetary Policy MCQs 2026

Tight monetary policy is appropriate when

1. Athe economy is in deep deflationary depression only✓
2. Bunemployment is the only problem and prices are falling fast✓
3. Cbanks have zero excess reserves always✓
4. Dinflationary pressures are strong✓

Sterilization in monetary policy refers to

1. Abanning all imports✓
2. Braising only income tax✓
3. Cfixing wheat prices✓
4. Doffsetting foreign exchange intervention effects on domestic money✓

Deposit insurance aims to

1. Araise the policy rate automatically✓
2. Breplace monetary policy✓
3. Cset import quotas✓
4. Dprotect small depositors and reduce panic runs✓

A run on a bank occurs when

1. ACRR is lowered slightly✓
2. Bmany depositors withdraw cash simultaneously from fear of failure✓
3. COMOs inject liquidity✓
4. DSLR is met comfortably✓

Islamic banking in Pakistan emphasizes

1. Ahigher CRR than conventional banks by law✓
2. Bprofit-and-loss sharing and avoidance of riba (interest)✓
3. Cprinting of parallel currency✓
4. DWTO dispute settlement✓

Night banking and ATMs mainly improve money's role as

1. Aa convenient medium of exchange✓
2. Ba unit of account formula✓
3. Ca tariff instrument✓
4. Da fiscal rule✓

High-powered money is another term for

1. Athe monetary base✓
2. Bonly household savings✓
3. Conly equity capital of firms✓
4. Donly foreign aid✓

Speculative demand for money (Keynes) varies inversely with

1. Athe CRR only✓
2. Bthe SLR only✓
3. Cpopulation growth only✓
4. Dthe rate of interest / bond yields✓

Demand for money for transactions motive depends mainly on

1. Aonly the colour of notes✓
2. Bonly tariff rates✓
3. Cincome and the volume of transactions✓
4. Donly seasonal unemployment✓

The quantity theory of money emphasizes

1. Aonly labour theory of value✓
2. Bonly Ricardian rents✓
3. Conly H-O factor endowments✓
4. Da proportional link between money and the price level (given V and Y)✓

A rise in money supply, other things equal, tends to

1. Aalways lower unemployment forever✓
2. Bput upward pressure on prices in the long run (quantity theory insight)✓
3. Celiminate fiscal deficits✓
4. Dcreate comparative advantage✓

Selective credit controls aim to

1. Aabolish all bank loans✓
2. Bprint provincial currencies✓
3. Cdirect credit to preferred sectors or curb speculative lending✓
4. Dset CPI basket weights✓

Bank rate policy influences

1. Aonly municipal property tax✓
2. Bonly textile quotas✓
3. Conly school fees✓
4. Dthe cost of central bank credit to banks and thus market rates✓

The lender of last resort function means the central bank

1. Aprovides emergency liquidity to solvent banks in crisis✓
2. Blends only to farmers✓
3. Csets WTO rules✓
4. Dcollects income tax✓

Gresham's law states that

1. Agood money always drives out bad✓
2. Bmoney has no store-of-value role✓
3. Cbad money drives out good money when both are legal tender at fixed rates✓
4. Dbanks cannot create credit✓

Legal tender means money that

1. Acan never be refused for any private contract worldwide✓
2. Bis only gold coin✓
3. Cmust be accepted in discharge of debts by law✓
4. Dis only foreign currency✓

Broad money is closer to

1. Aonly coins in pockets✓
2. Bonly vault cash of SBP✓
3. Conly one-day call money✓
4. DM2 or wider aggregates✓

Narrow money is closest to

1. AM1✓
2. Bonly long-term bonds✓
3. Conly land titles✓
4. Donly IMF SDRs✓

Quantitative easing broadly refers to

1. Araising CRR sharply✓
2. Blarge-scale asset purchases to inject liquidity when rates are near zero✓
3. Cbanning OMOs✓
4. Dfixing only agricultural prices✓

Moral suasion by a central bank means

1. Apersuading banks to follow desired credit policies✓
2. Bprinting unlimited notes✓
3. Cabolishing interest✓
4. Dsetting all tariffs✓

A leakage that reduces the money multiplier is

1. Ahigher bank lending always✓
2. Blower CRR always✓
3. Ccash drain held by the public outside banks✓
4. Dmore cheque usage always✓

The simple deposit multiplier is approximately

1. Areserve ratio × CRR✓
2. B1 / reserve ratio✓
3. CM2 / exports✓
4. DCPI / GDP deflator✓

Credit creation by banks rests on

1. A100% reserve backing of every loan✓
2. Bbanning cheque accounts✓
3. Cfractional reserve banking and deposit expansion✓
4. Dcentral bank retail lending only✓

Lowering CRR tends to

1. Afree reserves and allow more lending✓
2. Bforce banks to hold more idle cash✓
3. Cabolish deposit accounts✓
4. Dfix the exchange rate✓

Raising the policy rate is generally meant to

1. Aforce banks to print notes✓
2. Beliminate all saving✓
3. Craise structural unemployment by law✓
4. Ddiscourage borrowing and cool inflationary demand✓

The discount rate / policy rate is the rate at

1. Awhich farmers sell wheat only✓
2. Bwhich the central bank lends to commercial banks (or signals policy stance)✓
3. CWTO sets for all trade✓
4. Dhouseholds pay for electricity only✓

When the central bank buys securities in OMOs, it typically

1. Araises CRR by law✓
2. Bbans all lending✓
3. Cinjects liquidity into the banking system✓
4. Dcreates a tariff wall✓

When the central bank sells securities in OMOs, bank reserves tend to

1. Arise automatically✓
2. Bbecome infinite✓
3. Cfall, tightening liquidity✓
4. Dequal exports✓

Open Market Operations (OMOs) involve the central bank

1. Abuying or selling government securities to influence liquidity✓
2. Bsetting income tax slabs✓
3. Cfixing wheat support prices✓
4. Dissuing import quotas✓

Statutory Liquidity Ratio (SLR) requires banks to

1. Ahold a prescribed share of assets in liquid forms such as cash, gold or approved securities✓
2. Bclose all branches✓
3. Cabolish savings accounts✓
4. Dprint notes privately✓

Cash Reserve Ratio (CRR) requires banks to

1. Alend 100% of all deposits✓
2. Bbuy only foreign stocks✓
3. Ckeep a fraction of deposits as reserves with the central bank✓
4. Dpay zero interest forever✓

The State Bank of Pakistan (SBP) is

1. Aa private commercial bank only✓
2. BPakistan's central bank✓
3. Cthe WTO secretariat✓
4. Da provincial tax office✓

A central bank's primary roles include

1. Arunning retail grocery shops✓
2. Bissuing currency and conducting monetary policy✓
3. Csetting all private wages✓
4. Dcollecting only municipal taxes✓

Commercial banks mainly

1. Aprint legal tender currency✓
2. Bset the statutory CRR for the system✓
3. Caccept deposits and make loans for profit✓
4. Dconduct foreign policy✓

Liquidity of an asset refers to

1. Aits physical weight only✓
2. Bits colour✓
3. Cits age in years only✓
4. Dhow quickly it can be converted to cash without much loss of value✓

M2 is broader than M1 because it also includes

1. Aonly physical cash in ATMs✓
2. Bonly IMF quotas✓
3. Conly tariff revenues✓
4. Dnear-money such as savings and time deposits (definitions vary by country)✓

M1 generally emphasizes

1. Aonly long-term government bonds✓
2. Bonly gold in central vaults✓
3. Conly equity mutual funds✓
4. Dcurrency plus demand (checkable) deposits✓

M0 (monetary base / reserve money) typically includes

1. Acurrency in circulation plus banks' reserves at the central bank✓
2. Bonly stock market shares✓
3. Conly foreign remittances✓
4. Donly time deposits of households✓

Fiat money has value mainly because

1. Ait is always backed 100% by gold today✓
2. Bit is edible grain✓
3. Cit is declared legal tender and accepted by the public✓
4. Dit cannot be printed✓

A standard of deferred payment function means money

1. Acannot be used in contracts✓
2. Breplaces all interest rates✓
3. Cis only commodity money✓
4. Dis used to settle debts payable in the future✓

Money as a store of value means it

1. Amust lose all value overnight✓
2. Bcannot be saved✓
3. Ccan be held to transfer purchasing power to the future✓
4. Dis only a unit of account✓

As a unit of account, money

1. Amust be edible✓
2. Bcannot be divisible✓
3. Cprovides a common measure of value for prices and debts✓
4. Dis identical to barter✓

Money serves as a medium of exchange when it

1. Ais widely accepted in payment for goods and services✓
2. Bstores value only in gold vaults✓
3. Cmeasures utility only✓
4. Dis used only for barter ratios✓

Precautionary demand for money is held

1. Aonly to speculate on bonds✓
2. Bfor unexpected expenses and emergencies✓
3. Conly to pay customs duty✓
4. Donly as CRR✓

The SBP's monetary policy committee (or equivalent framework) is concerned with

1. Awriting the federal budget tax code✓
2. Bnegotiating WTO accession alone✓
3. Crunning commercial bank branches✓
4. Dsetting the policy rate and liquidity stance for price stability✓

Non-performing loans (NPLs) threaten banks because they

1. Araise the money multiplier automatically✓
2. Breduce asset quality and capital buffers✓
3. Clower CRR by law✓
4. Dcreate comparative advantage✓

Financial inclusion policies aim to

1. Araise CRR to 100%✓
2. Bban mobile wallets✓
3. Celiminate all ATMs✓
4. Dbring more people into formal banking and payment systems✓

Repo operations by the central bank usually

1. Araise SLR permanently✓
2. Bprovide short-term liquidity against collateral✓
3. Cabolish OMOs✓
4. Dfix CPI weights✓

A reverse repo operation typically

1. Aalways injects unlimited cash✓
2. Bsets income tax rates✓
3. Ccreates import licenses✓
4. Dabsorbs liquidity as the central bank borrows from banks against securities✓

Inside money refers mainly to

1. Aonly central bank notes✓
2. Bbank deposits created within the private banking system✓
3. Conly coins minted from gold✓
4. Donly IMF loans✓

Currency board-like arrangements peg money issue tightly to

1. Aforeign reserves at a fixed rate✓
2. Bdomestic stock prices only✓
3. Cagricultural output only✓
4. Dunemployment claims only✓

The credit channel of monetary policy emphasizes

1. Ahow policy affects banks' willingness and ability to lend✓
2. Bonly the foreign exchange reserves identity✓
3. Conly tariff pass-through✓
4. Donly Okun's coefficient✓

Monetary policy transmission via the interest rate channel works when

1. Abanks ignore all rate signals✓
2. Bpolicy rate changes affect market rates, investment and consumption✓
3. CCRR is abolished and irrelevant✓
4. Donly fiscal policy exists✓

Primary dealers in government securities

1. Aprint currency notes✓
2. Bunderwrite and trade government debt in the market✓
3. Cset the CRR✓
4. Drun the labour exchange✓

A clearing house facilitates

1. Asettlement of interbank claims and cheques✓
2. Bsetting of WTO tariffs✓
3. Ccollection of income tax✓
4. Dmeasurement of CPI✓

Seigniorage is

1. Agovernment revenue from issuing money✓
2. Ba type of import quota✓
3. Ca form of frictional unemployment✓
4. Dan H-O theorem corollary✓

Velocity of money measures

1. Athe CRR percentage✓
2. Bhow often a unit of money turns over in transactions per period✓
3. Cthe unemployment rate✓
4. Dthe tariff average✓

Treasury bills are

1. Ashort-term government securities often used in monetary operations✓
2. Bperpetual private equities✓
3. CIMF membership cards✓
4. Dprovincial sales tax forms✓

The money market deals mainly in

1. Aonly 30-year mortgages✓
2. Bonly equity IPOs✓
3. Cshort-term funds and instruments✓
4. Donly land titles✓

Easy (expansionary) monetary policy seeks to

1. Araise CRR and SLR together always✓
2. Bsell massive securities without offset✓
3. Clower rates / raise liquidity to stimulate demand✓
4. Dban bank lending✓