Advertisements
Advertisements
Questions
What is meant by credit creation?
What is credit (or money) creation?
Advertisements
Solution
Credit creation refers to the creation of demand deposits by banks in process of making loans. It signifies that power of commercial banks by which they create secondary deposits on the basis of primary deposits.
APPEARS IN
RELATED QUESTIONS
Explain the credit creation role of commercial banks with the help of a numerical example.
Explain the concept of ‘inflationary gap’. Also explain the role of ‘legal reserves’ in reducing it.
Do you consider a commercial bank ‘creator of money’ in the economy’?
Read the given extract carefully and answer the following questions.
| Mr. X wanted to buy an expensive motorcycle for his son but he did not have sufficient money to buy it. He approached a public sector commercial bank for the loan. The bank asked Mr. X to deposit 20% cash of the loan amount and rest 80% of the loan amount was given by the bank. |
- Briefly explain a Commercial Bank.
- What is the regulation of consumer credit in selective credit control?
- Name the bank which controls all the commercial banks and financial institutions in the country.
If legal reserve ratio is 20%, the value of money multiplier would be ______.
Suppose in an economy, the initial deposit of ₹ 400 crores lead to the creation of total deposits worth ₹ 4000 crore. Then the value of reserve requirements would be ______.
Primary deposits differ from derivative deposits because ______.
In the credit creation process, loans of one bank become ______.
A T-account shows that a ₹10,000 cash deposit increases ______.
Poor banking habits limit credit creation by ______.
