Money, Banking and Monetary Policy MCQs 2026

Easy (expansionary) monetary policy seeks to

1. A raise CRR and SLR together always ✓
2. B sell massive securities without offset ✓
3. C lower rates / raise liquidity to stimulate demand ✓
4. D ban bank lending ✓

Tight monetary policy is appropriate when

1. A the economy is in deep deflationary depression only ✓
2. B unemployment is the only problem and prices are falling fast ✓
3. C banks have zero excess reserves always ✓
4. D inflationary pressures are strong ✓

Sterilization in monetary policy refers to

1. A banning all imports ✓
2. B raising only income tax ✓
3. C fixing wheat prices ✓
4. D offsetting foreign exchange intervention effects on domestic money ✓

Deposit insurance aims to

1. A raise the policy rate automatically ✓
2. B replace monetary policy ✓
3. C set import quotas ✓
4. D protect small depositors and reduce panic runs ✓

A run on a bank occurs when

1. A CRR is lowered slightly ✓
2. B many depositors withdraw cash simultaneously from fear of failure ✓
3. C OMOs inject liquidity ✓
4. D SLR is met comfortably ✓

Islamic banking in Pakistan emphasizes

1. A higher CRR than conventional banks by law ✓
2. B profit-and-loss sharing and avoidance of riba (interest) ✓
3. C printing of parallel currency ✓
4. D WTO dispute settlement ✓

Night banking and ATMs mainly improve money's role as

1. A a convenient medium of exchange ✓
2. B a unit of account formula ✓
3. C a tariff instrument ✓
4. D a fiscal rule ✓

High-powered money is another term for

1. A the monetary base ✓
2. B only household savings ✓
3. C only equity capital of firms ✓
4. D only foreign aid ✓

Speculative demand for money (Keynes) varies inversely with

1. A the CRR only ✓
2. B the SLR only ✓
3. C population growth only ✓
4. D the rate of interest / bond yields ✓

Demand for money for transactions motive depends mainly on

1. A only the colour of notes ✓
2. B only tariff rates ✓
3. C income and the volume of transactions ✓
4. D only seasonal unemployment ✓

The quantity theory of money emphasizes

1. A only labour theory of value ✓
2. B only Ricardian rents ✓
3. C only H-O factor endowments ✓
4. D a proportional link between money and the price level (given V and Y) ✓

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

1. A always lower unemployment forever ✓
2. B put upward pressure on prices in the long run (quantity theory insight) ✓
3. C eliminate fiscal deficits ✓
4. D create comparative advantage ✓

Selective credit controls aim to

1. A abolish all bank loans ✓
2. B print provincial currencies ✓
3. C direct credit to preferred sectors or curb speculative lending ✓
4. D set CPI basket weights ✓

Bank rate policy influences

1. A only municipal property tax ✓
2. B only textile quotas ✓
3. C only school fees ✓
4. D the cost of central bank credit to banks and thus market rates ✓

The lender of last resort function means the central bank

1. A provides emergency liquidity to solvent banks in crisis ✓
2. B lends only to farmers ✓
3. C sets WTO rules ✓
4. D collects income tax ✓

Gresham's law states that

1. A good money always drives out bad ✓
2. B money has no store-of-value role ✓
3. C bad money drives out good money when both are legal tender at fixed rates ✓
4. D banks cannot create credit ✓

Legal tender means money that

1. A can never be refused for any private contract worldwide ✓
2. B is only gold coin ✓
3. C must be accepted in discharge of debts by law ✓
4. D is only foreign currency ✓

Broad money is closer to

1. A only coins in pockets ✓
2. B only vault cash of SBP ✓
3. C only one-day call money ✓
4. D M2 or wider aggregates ✓

Narrow money is closest to

1. A M1 ✓
2. B only long-term bonds ✓
3. C only land titles ✓
4. D only IMF SDRs ✓

Quantitative easing broadly refers to

1. A raising CRR sharply ✓
2. B large-scale asset purchases to inject liquidity when rates are near zero ✓
3. C banning OMOs ✓
4. D fixing only agricultural prices ✓

Moral suasion by a central bank means

1. A persuading banks to follow desired credit policies ✓
2. B printing unlimited notes ✓
3. C abolishing interest ✓
4. D setting all tariffs ✓

A leakage that reduces the money multiplier is

1. A higher bank lending always ✓
2. B lower CRR always ✓
3. C cash drain held by the public outside banks ✓
4. D more cheque usage always ✓

The simple deposit multiplier is approximately

1. A reserve ratio × CRR ✓
2. B 1 / reserve ratio ✓
3. C M2 / exports ✓
4. D CPI / GDP deflator ✓

Credit creation by banks rests on

1. A 100% reserve backing of every loan ✓
2. B banning cheque accounts ✓
3. C fractional reserve banking and deposit expansion ✓
4. D central bank retail lending only ✓

Lowering CRR tends to

1. A free reserves and allow more lending ✓
2. B force banks to hold more idle cash ✓
3. C abolish deposit accounts ✓
4. D fix the exchange rate ✓

Raising the policy rate is generally meant to

1. A force banks to print notes ✓
2. B eliminate all saving ✓
3. C raise structural unemployment by law ✓
4. D discourage borrowing and cool inflationary demand ✓

The discount rate / policy rate is the rate at

1. A which farmers sell wheat only ✓
2. B which the central bank lends to commercial banks (or signals policy stance) ✓
3. C WTO sets for all trade ✓
4. D households pay for electricity only ✓

When the central bank buys securities in OMOs, it typically

1. A raises CRR by law ✓
2. B bans all lending ✓
3. C injects liquidity into the banking system ✓
4. D creates a tariff wall ✓

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

1. A rise automatically ✓
2. B become infinite ✓
3. C fall, tightening liquidity ✓
4. D equal exports ✓

Open Market Operations (OMOs) involve the central bank

1. A buying or selling government securities to influence liquidity ✓
2. B setting income tax slabs ✓
3. C fixing wheat support prices ✓
4. D issuing import quotas ✓

Statutory Liquidity Ratio (SLR) requires banks to

1. A hold a prescribed share of assets in liquid forms such as cash, gold or approved securities ✓
2. B close all branches ✓
3. C abolish savings accounts ✓
4. D print notes privately ✓

Cash Reserve Ratio (CRR) requires banks to

1. A lend 100% of all deposits ✓
2. B buy only foreign stocks ✓
3. C keep a fraction of deposits as reserves with the central bank ✓
4. D pay zero interest forever ✓

The State Bank of Pakistan (SBP) is

1. A a private commercial bank only ✓
2. B Pakistan's central bank ✓
3. C the WTO secretariat ✓
4. D a provincial tax office ✓

Precautionary demand for money is held

1. A only to speculate on bonds ✓
2. B for unexpected expenses and emergencies ✓
3. C only to pay customs duty ✓
4. D only as CRR ✓

A central bank's primary roles include

1. A running retail grocery shops ✓
2. B issuing currency and conducting monetary policy ✓
3. C setting all private wages ✓
4. D collecting only municipal taxes ✓

Commercial banks mainly

1. A print legal tender currency ✓
2. B set the statutory CRR for the system ✓
3. C accept deposits and make loans for profit ✓
4. D conduct foreign policy ✓

Liquidity of an asset refers to

1. A its physical weight only ✓
2. B its colour ✓
3. C its age in years only ✓
4. D how quickly it can be converted to cash without much loss of value ✓

M2 is broader than M1 because it also includes

1. A only physical cash in ATMs ✓
2. B only IMF quotas ✓
3. C only tariff revenues ✓
4. D near-money such as savings and time deposits (definitions vary by country) ✓

M1 generally emphasizes

1. A only long-term government bonds ✓
2. B only gold in central vaults ✓
3. C only equity mutual funds ✓
4. D currency plus demand (checkable) deposits ✓

M0 (monetary base / reserve money) typically includes

1. A currency in circulation plus banks' reserves at the central bank ✓
2. B only stock market shares ✓
3. C only foreign remittances ✓
4. D only time deposits of households ✓

Fiat money has value mainly because

1. A it is always backed 100% by gold today ✓
2. B it is edible grain ✓
3. C it is declared legal tender and accepted by the public ✓
4. D it cannot be printed ✓

A standard of deferred payment function means money

1. A cannot be used in contracts ✓
2. B replaces all interest rates ✓
3. C is only commodity money ✓
4. D is used to settle debts payable in the future ✓

Money as a store of value means it

1. A must lose all value overnight ✓
2. B cannot be saved ✓
3. C can be held to transfer purchasing power to the future ✓
4. D is only a unit of account ✓

As a unit of account, money

1. A must be edible ✓
2. B cannot be divisible ✓
3. C provides a common measure of value for prices and debts ✓
4. D is identical to barter ✓

Money serves as a medium of exchange when it

1. A is widely accepted in payment for goods and services ✓
2. B stores value only in gold vaults ✓
3. C measures utility only ✓
4. D is used only for barter ratios ✓

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

1. A writing the federal budget tax code ✓
2. B negotiating WTO accession alone ✓
3. C running commercial bank branches ✓
4. D setting the policy rate and liquidity stance for price stability ✓

Non-performing loans (NPLs) threaten banks because they

1. A raise the money multiplier automatically ✓
2. B reduce asset quality and capital buffers ✓
3. C lower CRR by law ✓
4. D create comparative advantage ✓

Financial inclusion policies aim to

1. A raise CRR to 100% ✓
2. B ban mobile wallets ✓
3. C eliminate all ATMs ✓
4. D bring more people into formal banking and payment systems ✓

Repo operations by the central bank usually

1. A raise SLR permanently ✓
2. B provide short-term liquidity against collateral ✓
3. C abolish OMOs ✓
4. D fix CPI weights ✓

A reverse repo operation typically

1. A always injects unlimited cash ✓
2. B sets income tax rates ✓
3. C creates import licenses ✓
4. D absorbs liquidity as the central bank borrows from banks against securities ✓

Inside money refers mainly to

1. A only central bank notes ✓
2. B bank deposits created within the private banking system ✓
3. C only coins minted from gold ✓
4. D only IMF loans ✓

Currency board-like arrangements peg money issue tightly to

1. A foreign reserves at a fixed rate ✓
2. B domestic stock prices only ✓
3. C agricultural output only ✓
4. D unemployment claims only ✓

The credit channel of monetary policy emphasizes

1. A how policy affects banks' willingness and ability to lend ✓
2. B only the foreign exchange reserves identity ✓
3. C only tariff pass-through ✓
4. D only Okun's coefficient ✓

Monetary policy transmission via the interest rate channel works when

1. A banks ignore all rate signals ✓
2. B policy rate changes affect market rates, investment and consumption ✓
3. C CRR is abolished and irrelevant ✓
4. D only fiscal policy exists ✓

Primary dealers in government securities

1. A print currency notes ✓
2. B underwrite and trade government debt in the market ✓
3. C set the CRR ✓
4. D run the labour exchange ✓

A clearing house facilitates

1. A settlement of interbank claims and cheques ✓
2. B setting of WTO tariffs ✓
3. C collection of income tax ✓
4. D measurement of CPI ✓

Seigniorage is

1. A government revenue from issuing money ✓
2. B a type of import quota ✓
3. C a form of frictional unemployment ✓
4. D an H-O theorem corollary ✓

Velocity of money measures

1. A the CRR percentage ✓
2. B how often a unit of money turns over in transactions per period ✓
3. C the unemployment rate ✓
4. D the tariff average ✓

Treasury bills are

1. A short-term government securities often used in monetary operations ✓
2. B perpetual private equities ✓
3. C IMF membership cards ✓
4. D provincial sales tax forms ✓

The money market deals mainly in

1. A only 30-year mortgages ✓
2. B only equity IPOs ✓
3. C short-term funds and instruments ✓
4. D only land titles ✓