Question

Explain the process of credit creation by the commercial banks with the help of a numerical example.

Answer 1

Answer:

Commercial banks create credit by advancing loans and purchasing securities. ... Let us learn the process of credit creation by commercial banks with the help of an example. Suppose you deposit Rs. 10,000 in a bank A, which is the primary deposit of the bank. The cash reserve requirement of the central bank is 10%.

Answer 2

Answer:

The commercial banks again keep a portion of the deposits as reserves and lend the rest. ... It is due to this continuous process that the commercial banks are able to create credit money a multiple time of the initial deposits.