Question : Commercial banks can create money by:
Option 1: Printing currency notes and coins
Option 2: Lending out the deposits they receive
Option 3: Receiving deposits from customers
Option 4: All of the above
Correct Answer: Lending out the deposits they receive
Solution : The correct answer is (b). Lending out the deposits they receive
Commercial banks can create money through the process of lending. When a bank receives deposits from customers, it keeps only a fraction of those deposits as reserves and lends out the remaining amount. This lending creates new deposits in the banking system, effectively increasing the money supply. This process, known as fractional reserve banking, allows banks to create money through the expansion of credit. However, it's important to note that commercial banks do not have the authority to print currency notes and coins, which is the responsibility of the central bank.
Related Questions
Trending Articles/News
