Question : Through the process of _______ commercial banks are able to create credit, which is in far excess of the initial deposits.
Option 1: Advancing loans
Option 2: Money creation
Option 3: Accepting deposits
Option 4: None of these
Correct Answer: Money creation
Solution : The correct answer is (b) Money creation
Through the process of money creation, commercial banks are able to create credit that is in far excess of the initial deposits. When banks receive deposits from customers, they are able to lend out a portion of those deposits while keeping a fraction as reserves. This lending activity effectively creates new money in the form of credit, which expands the money supply beyond the initial deposits. Therefore, money creation is the process through which commercial banks generate credit in excess of the initial deposits.
