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Selective Credit Controls

Description: Selective Credit Controls Quiz
Number of Questions: 15
Created by:
Tags: monetary policy reserve bank of india selective credit controls
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What is the primary objective of selective credit controls?

  1. To control the overall money supply

  2. To direct credit towards specific sectors or activities

  3. To stabilize the exchange rate

  4. To reduce the government's budget deficit

Show answer
Correct Option: B
Explanation:

Selective credit controls are used by central banks to influence the flow of credit to specific sectors or activities of the economy, such as housing, agriculture, or small businesses.

Which of the following is an example of a selective credit control?

  1. Open market operations

  2. Reserve requirements

  3. Margin requirements

  4. Moral suasion

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Correct Option: C
Explanation:

Margin requirements are a type of selective credit control that limits the amount of credit that can be extended for the purchase of certain assets, such as stocks or real estate.

How do selective credit controls affect the cost and availability of credit?

  1. They increase the cost and availability of credit

  2. They decrease the cost and availability of credit

  3. They have no effect on the cost and availability of credit

  4. They increase the cost but decrease the availability of credit

Show answer
Correct Option: A
Explanation:

Selective credit controls typically increase the cost and availability of credit in the targeted sectors or activities.

What are the potential benefits of selective credit controls?

  1. They can help to promote economic growth

  2. They can help to stabilize the financial system

  3. They can help to reduce inflation

  4. All of the above

Show answer
Correct Option: D
Explanation:

Selective credit controls can potentially promote economic growth, stabilize the financial system, and reduce inflation.

What are the potential drawbacks of selective credit controls?

  1. They can lead to misallocation of resources

  2. They can create distortions in the financial system

  3. They can be difficult to administer

  4. All of the above

Show answer
Correct Option: D
Explanation:

Selective credit controls can potentially lead to misallocation of resources, create distortions in the financial system, and be difficult to administer.

Which of the following is not a type of selective credit control?

  1. Quantitative easing

  2. Moral suasion

  3. Credit rationing

  4. Reserve requirements

Show answer
Correct Option: A
Explanation:

Quantitative easing is a type of monetary policy that involves the central bank purchasing large quantities of financial assets, such as government bonds, in order to increase the money supply. It is not a type of selective credit control.

What is the difference between selective credit controls and general credit controls?

  1. Selective credit controls target specific sectors or activities, while general credit controls affect the entire economy

  2. Selective credit controls are more effective than general credit controls

  3. Selective credit controls are less effective than general credit controls

  4. Selective credit controls are more difficult to administer than general credit controls

Show answer
Correct Option: A
Explanation:

Selective credit controls are designed to influence the flow of credit to specific sectors or activities of the economy, while general credit controls affect the entire economy.

When are selective credit controls typically used?

  1. During periods of economic expansion

  2. During periods of economic contraction

  3. During periods of financial instability

  4. During periods of high inflation

Show answer
Correct Option: C
Explanation:

Selective credit controls are typically used during periods of financial instability, such as when there is a risk of a financial crisis.

Which of the following is an example of a sector that may be targeted by selective credit controls?

  1. Housing

  2. Agriculture

  3. Small businesses

  4. All of the above

Show answer
Correct Option: D
Explanation:

Selective credit controls can be used to target a variety of sectors, including housing, agriculture, and small businesses.

How do selective credit controls affect the overall economy?

  1. They can help to promote economic growth

  2. They can help to stabilize the financial system

  3. They can help to reduce inflation

  4. All of the above

Show answer
Correct Option: D
Explanation:

Selective credit controls can potentially promote economic growth, stabilize the financial system, and reduce inflation.

What is the role of the central bank in implementing selective credit controls?

  1. The central bank sets the targets for selective credit controls

  2. The central bank monitors the implementation of selective credit controls

  3. The central bank enforces selective credit controls

  4. All of the above

Show answer
Correct Option: D
Explanation:

The central bank plays a key role in implementing selective credit controls, including setting the targets, monitoring the implementation, and enforcing the controls.

What are some of the challenges associated with implementing selective credit controls?

  1. It can be difficult to identify the sectors or activities that should be targeted

  2. It can be difficult to set the appropriate targets for selective credit controls

  3. It can be difficult to monitor and enforce selective credit controls

  4. All of the above

Show answer
Correct Option: D
Explanation:

Implementing selective credit controls can be challenging due to difficulties in identifying the appropriate targets, setting the appropriate targets, and monitoring and enforcing the controls.

What are some of the potential unintended consequences of selective credit controls?

  1. They can lead to misallocation of resources

  2. They can create distortions in the financial system

  3. They can be difficult to administer

  4. All of the above

Show answer
Correct Option: D
Explanation:

Selective credit controls can potentially lead to misallocation of resources, create distortions in the financial system, and be difficult to administer.

How do selective credit controls affect the behavior of banks and other financial institutions?

  1. They encourage banks to lend more to the targeted sectors or activities

  2. They encourage banks to lend less to the targeted sectors or activities

  3. They have no effect on the behavior of banks and other financial institutions

  4. They make it more difficult for banks to lend to the targeted sectors or activities

Show answer
Correct Option: A
Explanation:

Selective credit controls are designed to encourage banks and other financial institutions to lend more to the targeted sectors or activities.

What are some of the alternative policy tools that can be used to achieve the same objectives as selective credit controls?

  1. Fiscal policy

  2. Monetary policy

  3. Structural reforms

  4. All of the above

Show answer
Correct Option: D
Explanation:

Fiscal policy, monetary policy, and structural reforms can all be used to achieve the same objectives as selective credit controls.

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