Class 12 Macroeconomics Sandeep Garg Solutions Chapter 6 - Banking - Commercial Banks and The Central Bank
FAQs on Macroeconomics Solutions: Sandeep Garg Chapter 6
1. How do Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) differ?
Both CRR (Cash Reserve Ratio) and SLR (Statutory Liquidity Ratio) are tools used by the Reserve Bank of India (RBI) to control money supply. Here’s how they differ:
- CRR is the percentage of a bank's total deposits that it must keep with the RBI in the form of cash.
- SLR is the percentage of a bank's total deposits that it must maintain in the form of liquid assets like cash, gold, or government securities.
The main distinction is the form in which reserves are held and where they are kept.
2. What does the term "Bank of Issue" signify in an economy?
The term "Bank of Issue" refers to the central bank of a country that holds the sole authority to issue currency notes. In India, the Reserve Bank of India (RBI) is the Bank of Issue, meaning it is the only institution allowed to print and distribute currency. This role is crucial for managing a nation's money supply and maintaining economic stability.
3. What are effective strategies for writing answers in Class 12 Macroeconomics exams?
To score well in Class 12 Macroeconomics exams for the 2025-26 academic year, focus on these strategies:
- Be Precise: Avoid lengthy answers; aim for clear and to-the-point responses.
- Sequential Order: Present your points in a logical and easy-to-follow sequence.
- Highlight Key Terms: Bold or underline important definitions, concepts, or final answers to make them stand out.
- Adhere to Word Limits/Marks: Adjust the detail of your answer according to the marks allotted for the question (e.g., a one-mark question needs a single line, while a four-mark question requires more elaboration).
- Include Diagrams/Examples: Where relevant, use simple diagrams or real-world examples to illustrate concepts.
4. What are the key distinctions between commercial banks and the central bank?
Commercial banks and the central bank (like RBI in India) play different yet crucial roles in an economy:
- Ownership: Commercial banks can be privately or publicly owned, while the central bank is typically owned by the government.
- Motive: Commercial banks operate to earn profit through lending and various financial services, whereas the central bank's primary motive is to maintain monetary and financial stability.
- Lending: Commercial banks deal directly with the public by accepting deposits and offering loans. The central bank, however, acts as a 'banker's bank' and a 'government's bank', lending money mainly to commercial banks and the government, not directly to the public.
- Currency Issue: Only the central bank has the authority to issue currency. Commercial banks do not have this power.
5. What are the main types of banks and their primary roles in India?
In India, the banking system includes several types of banks, each with distinct roles:
- Central Bank (RBI): Regulates the banking system, issues currency, and controls credit.
- Commercial Banks: Accept deposits, provide loans, and offer various financial services to individuals and businesses.
- Cooperative Banks: Provide credit and banking services, primarily to agricultural and rural sectors.
- Regional Rural Banks (RRBs): Focus on providing banking and financial services to rural areas and small farmers.
- Small Finance Banks: Cater to the financial inclusion of sections of the unserved and underserved population.
- Payments Banks: Offer small savings accounts and payment/remittance services, but cannot issue loans or credit cards.
The common functions among them include accepting deposits, lending, fund transfers, and offering locker facilities.
6. What are the most frequently asked questions about the 'Banking' chapter in Class 12 Economics board exams?
For the 'Banking' chapter in Class 12 Macroeconomics, students often find questions related to the core functions of commercial banks and the central bank (RBI) to be highly important. Concepts like credit creation by commercial banks, and the various methods of credit control used by the RBI (such as CRR, SLR, Repo Rate, Bank Rate, Open Market Operations) are also frequently tested. Understanding the differences between these banking institutions and their tools is key for the 2025-26 board exams.
7. How is credit creation by commercial banks an important concept for Class 12 Economics?
Credit creation is a fundamental concept in Class 12 Economics because it explains how commercial banks significantly impact the money supply in an economy. Through the process of accepting deposits and granting loans, banks are able to create additional money, known as secondary deposits. This concept helps students understand the dynamics of financial markets, the role of banks beyond just being deposit-takers, and how it influences economic activity and growth. It's often a key topic in board examinations.
8. Why is the control of credit by the Central Bank crucial for the Indian economy?
The control of credit by the Central Bank (RBI) is crucial because it directly influences the amount of money available in the economy. This control helps in achieving key macroeconomic goals such as maintaining price stability (controlling inflation), promoting economic growth, and ensuring the stability of the financial system. By adjusting policy rates like the Repo Rate, CRR, and SLR, the RBI can encourage or discourage borrowing and lending, thereby managing inflation and ensuring sustainable development for the Indian economy.
9. What is the expected marks weightage for the Banking chapter in the upcoming CBSE Class 12 Economics board exams?
For the 2025-26 CBSE Class 12 Economics board exams, the 'Banking' chapter from Macroeconomics typically carries a significant weightage. Students can generally expect questions accounting for approximately 6 to 8 marks from this chapter. These questions often cover topics like the functions of commercial banks, the role of the central bank, and various methods of credit control, appearing in both short and long answer formats.
10. How can students apply their understanding of banking concepts to real-world scenarios?
Understanding banking concepts from Class 12 Economics helps students grasp real-world financial situations. For example, knowing about interest rates helps them understand loans and savings decisions. Understanding inflation and the role of the RBI's monetary policy helps them interpret economic news and its impact on prices and employment. Recognizing the functions of commercial banks makes sense of everyday transactions, from using ATMs to applying for a loan, fostering financial literacy beyond the textbook.
