Banking Awareness - Basics Of Banking & Banking Terminology
Which action by banks directly leads to credit creation in the economy?
Which action by banks directly leads to credit creation in the economy?
easy Q12 of 15
Step-by-Step Solution
Step 1: Identify the mechanism
Credit creation occurs when banks lend funds.Step 2: Apply reserve principle
Banks lend a portion of deposits while keeping some as reserves.Final Answer:
Lending a part of the deposits → Option BQuick Check:
Lending beyond reserves expands credit ✅
Quick Trick: Partial lending = credit creation.
Common Mistakes:
- Thinking credit creation involves printing money.
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