Statement 1: Commercial Banks are able to lend money which is number of time more than their cash reserves
Statement 1: Commercial Banks are able to lend money which is number of time more than their cash reserves.
Statement 2: Demand deposits and primary deposits are one and the same thing.
Alternatives:
(a) Both the Statements are true
(b) Both the Statements are false
(c) Statement 1 is true and Statement 2 is false
(d) Statement 2 is true and Statement 1 is false
Anurag Pathak Changed status to publish January 6, 2024
Ans – (c)
Explanation:-
Statement 1 is true, as commercial banks are able to lend money which is a number of times more than their cash reserves.
for example:-
Initial Deposits (Cash Reserves) = ₹ 1,000
LRR = 10%
Credit Creation = Initial Deposits × 1/LRR
Credit Creation = 1,000 × 1/10%
Credit Creation = ₹ 10,000
Credit Creation is 10 times more than the cash reserves.
Statement 2 is false, demand deposits and primary deposits are not one and the same thing.
Primary Deposits are the cash deposits of people with commercial banks in different deposit accounts such as savings accounts, current accounts, term deposit accounts, and other deposits.
Whereas, demand deposits of the people with the commercial banks are the deposits in savings and current accounts.
Anurag Pathak Changed status to publish January 6, 2024
