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 any two limitations of credit creation by commercial banks.
Describe the role of public’s preference for cash in limiting credit creation.
Explain how the central bank can control the credit creation capacity of commercial banks.
Explain the difference between primary deposits and derivative deposits.
Explain the effect of a decrease in the cash reserve ratio on the process of credit creation.
Explain the impact of leakages in the banking system on credit creation.
Explain the process of multiple credit creation with the help of an example.
Explain the role of the central bank in controlling the process of credit creation during inflation.
Which of the following best explains the term 'derivative deposit'? (1) Deposit created by the central bank (2) Deposit created when a bank grants a loan (3) Deposit made by the government (4) Deposit in foreign currency
Which of the following factors does NOT limit the credit creation capacity of commercial banks? (1) Cash Reserve Ratio (2) Amount of cash in the economy (3) Number of bank branches (4) Public’s preference for cash
Which of the following is a consequence of excessive credit creation? (1) Deflation (2) Inflation (3) Decrease in money supply (4) Increase in unemployment
Which of the following is a direct instrument used by the central bank to control credit creation? (1) Open market operations (2) Moral suasion (3) Margin requirements (4) Bank rate policy
Fill in the blank: The ________ bank is responsible for regulating the credit creation capacity of commercial banks in India.
Fill in the blank: The ________ deposit is created when a bank grants a loan and credits the borrower's account.
Fill in the blank: The ________ is the maximum amount of credit that can be created from a given amount of cash reserves.
Fill in the blank: The formula for the credit multiplier is ________.
State whether the following statement is true or false: 'A higher cash reserve ratio leads to a lower credit multiplier.'
State whether the following statement is true or false: 'Credit creation by commercial banks is a form of secondary money creation.'
State whether the following statement is true or false: 'Credit creation by commercial banks is possible only in a system of fractional reserve banking.'
State whether the following statement is true or false: 'Derivative deposits are created when banks grant loans.'
