Question : The process of creating credit money by commercial banks is known as ___________.
Option 1: Credit creation
Option 2: Credit control
Option 3: Credit extension
Option 4: Credit allocation
Correct Answer: Credit creation
Solution : The correct answer is (a) Credit creation.
The process of creating credit money by commercial banks is known as credit creation. Commercial banks have the ability to create credit by extending loans and making advances to borrowers. When a bank grants a loan, it creates a deposit in the borrower's account, effectively increasing the money supply in the economy. This process is based on the fractional reserve banking system, where banks are required to hold only a fraction of the deposits they receive as reserves, allowing them to lend out the rest. Through this process of credit creation, banks contribute to the expansion of the money supply and facilitate economic activities. Credit control, credit extension, and credit allocation are related terms but do not specifically refer to the process of creating credit money by commercial banks.
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
Question : The bank rate is the rate at which:
Option 1: RBI borrows from commercial banks
Option 2: RBI lends to commercial banks
Option 3: Commercial banks lend to customers
Option 4: Commercial banks borrow from RBI
Question : What will be the impact on the credit creation ability of commercial banks if the government reduces income tax slabs?
Option 1: There will be more credit creation in the economy.
Option 2: There will be less credit creation in the economy.
Option 3: There will be no impact on credit creation.
Option 4: It depends upon the behaviour of the targeted population.
Question : The reverse repo rate is the rate at which Central Bank:
Option 1: Lends money to commercial banks short-term
Option 2: Lends money to commercial banks for long-term
Option 3: Accepts deposits from commercial banks
Question : What is the meaning of reverse repo rate?
Option 1: The rate at which RBI borrows money from foreign banks.
Option 2: The rate at which RBI borrows money from commercial banks.
Option 3: The rate at which commercial banks borrow money from RBI.
Option 4: The rate at which commercial banks borrow money from foreign banks.
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