Question

Explain why the money supply might change due to change in the behavior of commercial
banks and the central bank?

Answer 1

A change in the behavior of banks can increase as well as decrease the supply of money in an economy.

Explanation:

• A change in the behavior of commercial and central banks in India can change the money supply.
• Money supply can be defined as the process of the creation of money by the banks of India.
• This process mainly includes receiving savings from their customers and lending loans to the other customers.
• When the banks change their policies or behavior, the flow of both expenditures, as well as investment in the economy will change. This will affect the process of credit creation.