Commercial banks are the important source of money supply in the economy. They contribute to money supply by creating credit.
They create credit out of their total deposits which are many more times greater than their initial level of deposits.
Money creation is determined by:
(i) The amount of the initial fresh deposits.
(ii) The Legal Reserve Ratio (LRR), which is the minimum ratio of deposits legally required to be kept as cash by the banks.
Money Creation = Initial Deposits x 1/LRR
Example, let the LRR be 20%,
Fresh deposits = Rs 10000
As required, the banks keep 20% i.e. Rs 2000 as cash. Suppose the banks lend the remaining amount of Rs 8000. Those persons who borrow, use this money for making payments.
Further, it is also assumed that, persons receiving the payment will deposit the amount in the bank. This will result in banks receiving fresh deposits of Rs 8000. The banks again keep Rs 1600 as cash and lend Rs 6400, which is also 80% of the last deposit, the money again comes back to the banks leading to a fresh deposit of Rs 6400. In this way, the money goes on multiplying and ultimately, total money creation is Rs 50000.
According to the formula,
Money Creation = 10000 x 1/20% = Rs 50000

Properties/characterstics of indifference curves are:
(i) Indifference curves are negatively sloped or they slope downward It shows that more of one commodity implies less of the other, so that total satisfaction (at any point on Indifference curve) remains the same.
(ii) Indifference curves are convex to the point of origin An indifference curve will ordinarily be convex to the point of origin. This is because of diminishing Marginal Rate of Substitution. We can say that for every additional unit of a good, a consumer is willing to give up lesser and lesser amount of another good.
(iii) Indifference curve touches neither X-axis nor Y-axis It is often assumed that a consumer buys a combination of two goods. Hence, an indifference curve touches neither X-axis nor Y-axis as touching either axis represents zero units of the respective goods.
(iv) Indifference curves never touch or intersect each other Each Indifference curve represents a different level of satisfaction. So, their intersection is ruled out. Also if indifference curves intersects Law of Transitivity and indifference law will contradict each other.

Functions of a Central Bank. Main functions of a Central Bank are to act as governor of the machinery of credit in order to secure stability of prices. It regulates the volume of credit and currency, pumping in more money when market is dry of cash, and pumping out money when there is excess of credit. Broadly, a central bank has two departments, namely, issue department and banking department. We discuss below its main functions.
1.    Issue of Currency. The central bank is given the sole monopoly of issuing currency in order to secure control over volume of currency and credit. These notes circulate throughout the country as legal tender money. Note-issuing is governed by Minimum Reserve System i.e. while issuing currency notes, a minimum fixed amount of gold and foreign currency is kept by Central Bank. It has to keep a reserve in the form of gold and foreign securities as per statutory rules against the notes issued by it. It may be noted that RBI issues all currency notes in India except one rupee note. Again it is under directions of RBI that one rupee notes and small coins are issued by government mints. Remember, central government of a country is usually authorised to borrow money from the central bank. When central government expenditure exceeds government revenue and Govt, is unable to reduce its expenditure, then it borrows from RBI. This is done by selling security bills to RBI which creates new currency notes for the purpose. This is called monetisation of budget deficit or deficit financing. The government spends new currency and puts it into circulation to meet its expenditure.
2.    Banker to the Government. Central Bank functions as a banker to the government— both central and state governments. It carries out all banking business of the government. Governments keep their cash balances in the current account with the central bank. Similarly, central bank accepts receipts and makes payment on behalf of the governments. Also central bank carries out exchange, remittance and other banking operations on behalf of the government. Central bank gives loans and advances to governments for temporary periods, as and when necessary, and it also manages the public debt of the country.
3.    Bankers’ Bank and Supervisor. There are usually hundreds of banks in a country. There should be some agency to regulate and supervise their proper functioning. This duty is discharged by the central bank. Central bank acts as banker's bank in three capacities : (i) it is custodian of their cash reserves. Banks of the country are required to keep a certain percentage of their deposits with the central bank; and in this way the central bank is the ultimate holder of the cash reserves of commercial banks. (ii) Central bank is lender of last resort. Whenever banks are short of funds, they can take loans from the central bank and get their trade bills discounted. Thus Central Bank is a source of great strength to the banking system. (iii) It acts as a bank of central clearance, settlements and transfers. Its moral persuasion is usually very effective so far as commercial banks are concerned.

In a perfectly competitive market, firms are price-takers. For a price-taking firm, average revenue is equal to market price and marginal revenue is equal to market price. A firm is price taker when industry determines the price in perfect market.

Difference between the Expansion of demand and Contraction of demand is as follows:

Positive economics is a stream of economics that focuses on the description, quantification and explanation of economic developments, expectations and associated phenomena. It relies on objective data analysis, relevant facts and associated figures. Positive economics attempts to establish any cause-and-effect relationships or behavioral associations which can help ascertain and test the development of economics theories. For example, consider the following statement: "Though historical data indicates boost in spending if government cuts tax rates to half, the current budget constraints may not allow room for reducing tax rates." It attempts to convey a clear fact citing historical data that can be verified for the stated claim. Such statements can be defined, tested or rejected, and edited depending on the extent and availability of the evidence and form a part of positive economics.

Diagrammatic Derivation of Saving Curve from Consumption Curve 

We know that consumption + saving is always equal to Income because income is either consumed or saved.

It implies that consumption and saving curves representing consumption and saving functions are complementary curves.

Therefore, we can derive saving function or curve directly from consumption function or curve. This has been depicted in the adjoining Fig. 8.7 comprising Part-A showing consumption function and Part-B showing saving function.

In Part-A of this Figure, CC curve shows consumption function corresponding to each level of income whereas 45° line represents income. Recall that each point on 45° line is equidistant from X-axis and Y-axis. C curve intersects 45° line at point B at which BR = OR, i.e., consumption = Income. Therefore, point B is called Break-even point showing zero saving.

It emphasises that saving curve must intersect x-axis at the same income level where consumption curve and 45° line intersect. Further, it will be seen that to the left of point B, consumption function lies above 45° line showing that consumption is more than income, i.e., negative saving and to the right of point B, consumption function lies below 45° line showing positive saving.

Now, in Part-B we derive saving function in the form of saving curve. Remember, in Part-A, the amount of saving (or dissaving) is the vertical distance between C curve and 45° line. By plotting in Part-B of the Fig. 8.7, the vertical distances of Part-A representing saving/dissaving and by joining them, we derive a saving curve. For instance, at 0 (zero) level of income in Part-A, vertical distance OC (representing dissaving) is plotted as OS1 below X-axis in Part-B.

Similarly, at OR level of income in Part-A, vertical distance at point B being nil is shown as point B1 on X-axis in lower part of the Fig. Likewise, LM vertical distance of Part-A is shown as L1M1 in Part-B. By joining points S, B1 and L1 in lower segment, we get saving curve. Thus, saving curve/function is diagrammatically derived from consumption curve/function.