Question : Assertion (A) Currency held by the public is a monetary liability of the central bank.
Reason (R) Central bank controls credit, whereas commercial banks create credit with the currency held by the public.
Option 1: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
Option 2: Both Assertion (A) and Reason (R) are true but Reason (R) is the not correct explanation of Assertion (A)
Option 3: Assertion (A) is true, but Reason (R) is false.
Option 4: Assertion (A) is false, but Reason (R) is true.
Correct Answer: Both Assertion (A) and Reason (R) are true but Reason (R) is the not correct explanation of Assertion (A)
Solution : The correct answer is (b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
Assertion is true because the central bank is responsible for issuing and maintaining the supply of currency, and it represents a liability on the central bank's balance sheet.
Reason states that the central bank controls credit, whereas commercial banks create credit with the currency held by the public. While the central bank does have a role in controlling credit through monetary policy tools, such as setting interest rates and reserve requirements, it is not directly linked to commercial banks creating credit with the currency held by the public. Commercial banks create credit through the process of fractional reserve banking, which involves lending out a portion of the deposits they receive, independent of the currency held by the public.
Therefore, both Assertion (A) and Reason (R) are true, but Reason (R) does not provide the correct explanation of Assertion (A).
Question : Assertion (A) The currency notes do not carry as much value in them as is denominated, but still have general acceptance.
Reason (R) Currency notes are backed by a legal promise from the central bank and central government of the country.
Question : Assertion (A) Central bank as a banker to the banker to the government, works as a financial adviser.
Reason (R) Government borrows internally from banks and the general public.
Option 2: Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation of Assertion (A)
Question : Assertion(A)Central Bank as a banker to the government, works as a custodian of cash reserves.
Reason(R) The Central Bank acts as a clearinghouse for the transfer and settlement of mutual claims of commercial banks.
Option 1: Both Assertion (A) and Reason(R) are true and Reason (R) is the correct explanation of Assertion (A)
Option 2: Both Assertion (A) and Reason(R) are true, but Reason (R) is not the correct explanation of Assertion (A)
Option 4: Assertion (A) Is false, but Reason (R) is true.
Question : Assertion (A) Central Bank as a banker to the government, works as a custodian of cash reserves.
Question : Assertion (A): Currency money is also termed as Fiat money.
Reason(R): Under law, currency must be accepted for payment for all debts.
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