Assertion (A): Credit creation by Commercial Banks raises the money supply in the economy
Assertion (A): Credit creation by Commercial Banks raises the money supply in the economy.
Reason (R): In the credit creation process, Commercial Banks are able to distribute loans which are in far excess of the initial or Primary Deposits.
Alternatives:
(a) Both Assertion (A) and Reason (R) are True and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are True and Reason (R) is not the correct explanation of Assertion (A).
(c) Assertion (A) is True but Reason (R) is False
(d) Assertion (A) is False but Reason (R) is True
Anurag Pathak Changed status to publish January 5, 2024
Ans – (a)
Explanation:-
Assertion (A) is correct as the credit creation by commercial banks raises the money supply in the economy as in the money creation process commercial banks distribute the loans which are in deposited in a new demand deposits account.
These demand deposits work as money and can be used to settle the financial liabilities and purchases.
Thus Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).
Anurag Pathak Changed status to publish January 5, 2024
