Credit Creation by Commercial Banks
Economics ⇒ Money and Banking
Credit Creation by Commercial Banks starts at 11 and continues till grade 12.
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Describe the effect of a fall in the cash reserve ratio on the process of credit creation.
Describe the impact of an increase in the cash reserve ratio on the ability of commercial banks to create credit.
Describe the process by which a single deposit can lead to multiple expansions of credit in the banking system.
Explain how leakages in the banking system affect the process of credit creation.
Explain how the central bank can control credit creation by commercial banks.
Explain the difference between primary and derivative deposits.
Explain the role of the cash reserve ratio (CRR) in the process of credit creation.
Explain the term 'fractional reserve banking' in the context of credit creation.
Which of the following best describes the credit multiplier? (1) The ratio of total deposits to initial deposits (2) The ratio of loans to reserves (3) The ratio of reserves to loans (4) The ratio of cash to deposits
Which of the following factors does NOT limit the process of credit creation? (1) Amount of cash in the economy (2) Willingness of people to borrow (3) Number of employees in the bank (4) Central bank's policies
Which of the following is a direct instrument to control credit creation? (1) Open market operations (2) Moral suasion (3) Bank rate policy (4) Cash reserve ratio
Which of the following is a necessary condition for credit creation? (1) Existence of a central bank (2) Existence of a single bank (3) Existence of multiple banks (4) Existence of a stock market
Fill in the blank: The ________ deposit is the original deposit made by a customer in a bank.
Fill in the blank: The ________ is the minimum percentage of deposits that a bank must keep as cash reserves.
Fill in the blank: The ________ is the ratio of total deposits created to the initial deposit.
Fill in the blank: The process of credit creation by commercial banks is also known as the process of ________ money creation.
State whether the following statement is true or false: 'A higher cash reserve ratio leads to higher credit creation.'
State whether the following statement is true or false: 'Credit creation by commercial banks is possible only if there is a demand for loans.'
State whether the following statement is true or false: 'Credit creation by commercial banks is possible only in a cashless economy.'
True or False: Commercial banks can create credit only if they receive cash deposits from the public.
