Assertion (A): Reserve ratio and credit creation power of commercial bank are directly related.

Question

0

Anurag Pathak24.20K January 5, 2024 0 Comments

Reason (R): Credit creation is the product of the reciprocal of Reserve Ratio (RR) and Primary deposit.

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

score 0 · Answer 1 · 2024-01-05T16:13:33+00:00

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 (RR) and Primary deposit.

Credit Creation = Primary Deposit × 1/LRR