Explain the process of money creation …

Our locality commercial bank providing short and long period of loan to the public for business and other purpose.

Answers ❤️‍🔥50₹

Money creation refer to the amount by which commercial banks are able to create credit on the bases of reserve ratio and primary deposits It is compulsory for the banks ot keep certain percent of deposit as reserve is known as *LRR or RR* *Now suppose intial deposit is 10000 and LRR is20% Money multiplier = 1/LRR 1/20%=5 SIMILARLY: 1000/20%=200 1000-200=800 DEPOSIT LOANS CASH RESERV 1000 800 200 800 640 160 640 512 128 _ _ _ _ _ _ _ _ _ 5000 4000 1000 TOTAL CREDIT CREATION= intial deposit ×mm 1000×5=5000