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Explain the process of credit creation …

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Explain the process of credit creation by bank

    • Posted by Moly Shukla 3 years, 3 months ago

    CBSE > Class 12 > Economics
    • 1 answers

    Krrish Shridhar 3 years, 3 months ago

    1• Commercial banks create credit with the help of money which is deposited by public in banks. 2• Banks have to keep a certain amount of deposits with themselves as liquid assets out of initial deposits. 3• This amount is calculated using LRR which is decided by central bank. 4• The extra money (money except liquid assets) is uses by banks to give loans and they charge a certain amount of interest. 5• The total credit created is far access of initial deposits. NUMERICAL EXAMPLE:- let initial deposits= 2000 & LRR= 10% SOLUTION:- Money Multiplier=1/LRR= 1/10% = 100/10 =10times Therefore, total deposits became 20000 that is 10times of initial deposits (2000)

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