Economics

Central bank and its functions

Q: Monetary policy of the central bank is related to which subject?

Macroeconomics A central bank’s monetary policy regulates money supply, credit availability and interest rates. These instruments affect aggregate demand, inflation, investment, output and employment throughout the economy. Because it deals with economy-wide outcomes, monetary policy is a macroeconomic subject. Hence C is correct.

Q: Why is the role of the central bank studied in macroeconomics?

Because it affects the money and credit system A central bank regulates money supply, credit, interest rates, and banking conditions, and it often supports price and financial stability. Through monetary policy and related functions, its decisions influence aggregate demand, inflation, output, employment, and growth. Hence its role is a macroeconomic subject.

In this Class 12 Economics topic from Money and Banking, students learn how a central bank manages a country’s monetary and banking system. Using the Reserve Bank of India as a reference, they study its role as the issuer of currency, banker and adviser to the government, banker’s bank, lender of last resort, manager of foreign exchange reserves, and regulator of credit. The topic also explains tools such as the repo rate, bank rate, cash reserve ratio, and open market operations, and how these influence money supply, interest rates, inflation, and economic stability.

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Practice questions

01Monetary policy of the central bank is related to which subject?

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Answer and explanation

Correct answer: C. Macroeconomics

A central bank’s monetary policy regulates money supply, credit availability and interest rates. These instruments affect aggregate demand, inflation, investment, output and employment throughout the economy. Because it deals with economy-wide outcomes, monetary policy is a macroeconomic subject. Hence C is correct.

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02Why is the role of the central bank studied in macroeconomics?

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Answer and explanation

Correct answer: A. Because it affects the money and credit system

A central bank regulates money supply, credit, interest rates, and banking conditions, and it often supports price and financial stability. Through monetary policy and related functions, its decisions influence aggregate demand, inflation, output, employment, and growth. Hence its role is a macroeconomic subject.

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Central bank and its functions

Practice questions

01Monetary policy of the central bank is related to which subject?केंद्रीय बैंक की मौद्रिक नीति किस विषय से जुड़ी है?

02Why is the role of the central bank studied in macroeconomics?समष्टि अर्थशास्त्र में केंद्रीय बैंक की भूमिका क्यों पढ़ी जाती है?

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01Monetary policy of the central bank is related to which subject?

02Why is the role of the central bank studied in macroeconomics?