Money And Banking

Step 1: Understanding liabilities of commercial banks.
Liabilities of commercial banks include deposits, borrowings, and money they owe to others. However, paid-up capital and reserves are considered equity or ownership of the bank, not liabilities.

Step 2: Analysis of options.
- (A) Paid-up capital and reserves: This is correct. Paid-up capital and reserves represent the bank's equity and are not considered liabilities.
- (B) Time and demand deposits: These are liabilities because the bank owes this money to depositors.
- (C) Money at call and short notice: This is a liability as it represents money the bank must pay to others upon request.
- (D) Borrowings: Borrowings are a liability because the bank owes money to creditors.

Step 3: Conclusion.
Paid-up capital and reserves are not liabilities, so the correct answer is (A).

Step 1: Understanding the statutory liquidity requirement (SLR).
SLR is the minimum percentage of a commercial bank's net demand and time liabilities (NDTL) that it must maintain in the form of liquid assets such as cash, gold, and government securities.

Step 2: Analysis of options.
- (A) Required reserves: This is correct. Banks must maintain reserves as part of their SLR.
- (B) Treasury bill: This is correct. Treasury bills are eligible assets for meeting SLR requirements.
- (C) Unencumbered government and other approved securities: This is correct. Government securities are part of SLR.
- (D) Current account balances with other banks: This is incorrect. Current account balances with other banks are not considered part of SLR as they are not liquid assets that can be used to meet the requirement.

Step 3: Conclusion.
The correct answer is (D), as current account balances with other banks are not part of the SLR.

Step 1: Understanding the concept.
The statement that currency held in hand yields no income refers to the idea that money held as cash does not generate any return or interest. This concept is associated with the classical view of money.

Step 2: Conclusion.
This idea is attributed to I. Fisher, who discussed the opportunity cost of holding money.

Step 1: Understand the money multiplier.
The money multiplier is the ratio of the money supply to the base or high-powered money. It indicates how much the money supply increases for every unit of high-powered money. It is calculated as:

Step 2: Analysis of options.
- (A) It is the ratio of the stock of money to the stock of high-powered money: This is correct. The money multiplier measures how much the money supply increases relative to high-powered money.
- (B) It is always smaller than one: This is incorrect. The money multiplier is generally greater than one, except in cases where the reserve ratio is 100%.
- (C) Its value depends on the reserve ratio and currency-deposit ratio: This is correct. The money multiplier is influenced by both the reserve ratio and the currency-deposit ratio, affecting how much the central bank can expand the money supply.
- (D) It is inversely related to the reserve ratio: This is correct. The money multiplier is inversely proportional to the reserve ratio; as the reserve ratio increases, the money multiplier decreases.

Step 3: Conclusion.
The correct answer is (A), (B), and (D) only, as these options correctly describe the relationship of the money multiplier.

Step 1: Understand the Keynesian framework.
In the Keynesian economic framework, the equilibrium interest rate is determined by the interaction of the demand for and the supply of money in the economy. The interest rate is the price of borrowing money, which is influenced by the demand for money (for transactions, speculative purposes, etc.) and the supply of money (determined by the central bank).

Step 2: Analysis of options.
- (A) The rate that equates the supply of and the demand for bonds: This is incorrect. While bond prices and interest rates are inversely related, the equilibrium interest rate in the Keynesian framework specifically refers to the supply and demand for money, not bonds.
- (B) The rate that equates the supply of money with the demand for money: This is correct. In the Keynesian model, the equilibrium interest rate is determined by the supply of and the demand for money.
- (C) The rate that equates the supply of money and demand for investment: This is correct. While investment is influenced by the interest rate, it is more closely related to the demand for money and not a direct part of the supply-demand balance for interest rate determination.
- (D) The rate that equates supply of labour and demand for labour: This is incorrect. The supply and demand for labor determine wages, not the equilibrium interest rate.

Step 3: Conclusion.
The correct answer is (A), (B), and (C) only.

Step 1: Understanding the components of money supply.
- **M3 (A)** is the broadest measure of money supply and includes currency held by the public, demand deposits of banks, and other deposits of the RBI. This matches with **(I)**.
- **M2 (B)** includes currency held by the public, demand deposits of banks, other deposits of the RBI, and net time deposits of banks. This corresponds to **(II)**.
- **M1 (C)** includes currency held by the public, demand deposits, other deposits of the RBI, and savings deposits with post office savings banks. This corresponds to **(III)**.
- **M4 (D)** includes all components of M3 and M1, as well as total deposits with post office savings organization, excluding National Savings Certificates. This corresponds to **(IV)**.

Step 2: Conclusion.
The correct answer is **(A) - (I), (B) - (II), (C) - (III), (D) - (IV)**.