Question

What will be impact on credit creation ability of commercial banks if government reduces income tax slabs?
a) there will be more credit creation in the economy
b) there will be less credit creation in the economy
c) there will be no impact on the creation
d) It depends upon the behavior of the targeted population.

Answer 1

Answer:

(a)There will be more credit creation in the economy

Answer 2

Answer:

Option a is correct.

Explanation:

A rise mostly in bank rate will increase the cost of loans for commercial banks, putting pressure on them to speed up lending.

When more currency is issued, there is more money in circulation, and vice versa. As a result, the banks are able to extend more credit thanks to the increasing money supply or circulation.

The process of customers depositing money in banks and then commercial banks granting out loans in response is never-ending. This commercial bank lending procedure boosts the economy's rate of investment & production, which in turn helps to raise the nation's income.

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