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Ans – (a) Explanation:- Statement 1 is correct as Money creation by commercial banks raises the National Income. In the process of money creation, the commercial bank creates money by creating new demand deposits by providing loans to the public.…
Ans – (d) Explanation:- Statement 1 is false, Money Multiplier is inversely related to legal reserve ratio. Statement 2 is correct commercial banks create credit based upon the initial deposit and legal reserve ratio. Money multiplier = 1/LRR Credit Creation…
Ans – (c) Explanation:- Statement 1 is true as the sum total of primary and secondary deposits is equal to the total demand deposits of the commercial banks. Statement 2 is false as secondary deposits are more as compared to…
Ans – (d) Explanation:- Assertion (A) is false as the Reserve ratio and credit creation power of the commercial bank is inversely related. Reason (R) is correct as credit creation is the product of the reciprocal of the Reserve Ratio…
Ans – (c) Explanation:- Assertion (A) is correct as the central bank provides loans to commercial banks in situations of financial crisis. Reason (R) is false as the central bank can not order the government to help the bank facing…
Ans – (a) Explanation:- During the COVID-19 pandemic, economic transactions were stopped. The borrowers did not have a flow of money to pay the installments. Thus Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation…
Ans – (c) Explanation:- Assertion (A) is correct as the money from the demand deposits can be withdrawn on demand and a convenient mode of payment for the execution of even the high-value transactions. Reason (R) is false as demand…
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…
Ans – (a) Explanation:- With the increase in the legal reserve ratio, the credit creation capacity of commercial banks is reduced. An increase in reserve ratio reduces the available funds with banks which it can give for loans. The Assertion…
Ans – (c) Explanation:- Assertion A is true as commercial banks contribute to quantum of money supply in the economy through credit creation. Reason (R) is false as commercial banks does not have the note issuing authority. This is the…