Monetary Policy Quiz - CBSE Class 12 Economics

Free practice quiz: Monetary Policy (CBSE Class 12 Economics). 20 multiple-choice questions with answers and explanations. Play online, no sign-up needed.

This CBSE Class 12 Economics practice quiz has 20 multiple-choice questions on Monetary Policy, and 20 of them come with an explanation. Try the 5 sample questions below (tap an option to check yourself), then play the full quiz online. No sign-up needed.

Sample questions

1. What is the primary objective of monetary policy?

   1. To control inflation
   2. To increase government revenue
   3. To regulate fiscal policy
   4. To influence trade balances
   Show answer

   Answer: A. To control inflation

   The primary objective of monetary policy is to control inflation by managing the money supply and interest rates.

2. What is the effect of expansionary monetary policy?

   1. Decrease in GDP
   2. Increase in unemployment
   3. Increase in money supply
   4. Rise in taxes
   Show answer

   Answer: C. Increase in money supply

   Expansionary monetary policy aims to increase the money supply to stimulate economic growth and decrease unemployment.

3. What is the Taylor Rule?

   1. A guideline for government spending
   2. A principle for setting interest rates based on inflation and output
   3. A method for calculating taxes
   4. A strategy for international trade
   Show answer

   Answer: B. A principle for setting interest rates based on inflation and output

   The Taylor Rule is a formula that central banks use to help determine optimal interest rates based on economic conditions.

4. What does a strong currency imply for a country's exports?

   1. More competitive exports
   2. Less competitive exports
   3. No impact on exports
   4. Increase in export prices
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   Answer: B. Less competitive exports

   A strong currency makes a country’s goods more expensive for foreign buyers, thus making exports less competitive.

5. What impact do rising interest rates generally have on stock prices?

   1. Increase stock prices
   2. No effect on stock prices
   3. Decrease stock prices
   4. Only affect dividends
   Show answer

   Answer: C. Decrease stock prices

   Rising interest rates can lead to a decrease in stock prices as they increase borrowing costs for companies and make fixed-income investment more appealing.

More questions in this quiz

Answers and explanations are in the full quiz.

1. Which of the following is a tool of monetary policy?
2. What does an increase in the reserve requirement lead to?
3. How does lowering interest rates affect consumer spending?
4. What happens to inflation rates when a central bank utilizes contractionary monetary policy?
5. What is quantitative easing?
6. Which of the following is NOT a function of central banks?
7. Which of the following would likely cause interest rates to rise?
8. How might monetary policy affect employment levels?
9. What is the impact of high-interest rates on consumer credit?
10. What type of inflation occurs when demand exceeds supply?
11. Which measure is usually taken by central banks during hyperinflation?
12. What does the term 'Liquidity Trap' refer to?
13. How does monetary policy influence inflation expectations?
14. What is the ultimate goal of a central bank's monetary policy?
15. What is the relationship between money supply and inflation in the long run?

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