CA Foundation P4 · Chapter 8 · Question 6 of 15
According to the Cambridge cash-balance equation M = kPY, if k = 0.25 and nominal income PY = Rs. 8,000 crore, the demand for money is:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Rs. 2,000 crore
Explanation
M = k x PY = 0.25 x 8,000 = Rs. 2,000 crore. Here k is the proportion of nominal income people wish to hold as cash balances; it is the reciprocal of income velocity (1/0.25 = 4). 32,000 results from dividing by k.
More Money Market MCQs
- Q8The currency-deposit ratio is 0.2 and the reserve-deposit ratio is 0.1. If high-powered money is Rs. 500 crore, the money supply is:
- Q9Reserve money (high-powered money) consists of:
- Q10When the central bank purchases government securities in the open market, it:
- Q11An increase in the cash reserve ratio (CRR) will, other things being equal:
- Q12The repo rate is the rate at which: