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Social Science: Money and Credit - Role of Money in an Economy

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How do the deposits with banks become their source of income?

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Solution

The deposits with  banks become their source of income. This is because money deposited by depositors is used by banks for giving loans to persons in need of credit. Banks charge high rate of interest on the money they lend. However, the interest provided by banks to their depositors is quite low. It is the difference in these two interest rates that forms the income of banks.

Concept: Role of Money in an Economy
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