Banking Awareness - Basics Of Banking & Banking Terminology
Which situation would reduce the credit creation capacity of banks?
Which situation would reduce the credit creation capacity of banks?
hard Q8 of 15
Step-by-Step Solution
Step 1: Identify regulatory impact
Reserve ratio affects lending capacity.Step 2: Apply logic
Higher reserve ratio means less money available for loans.Final Answer:
Increase in reserve ratio → Option CQuick Check:
Higher reserves = lower credit creation ✅
Quick Trick: Higher reserve ratio shrinks lending.
Common Mistakes:
- Assuming demand alone controls credit creation.
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