News On Economics Blog

 ## Objective Questions with Problem-Solving on Bank Credit Creation: **1. Which of the following BEST describes the process of bank credit creation?** (a) Banks print new money based on loan demand. (b) Banks lend a portion of their customers' deposits. (c) Banks transfer money from government accounts to private accounts. (d) Banks borrow money from the central bank and lend it out. **Answer:** (b) Banks lend a portion of their customers' deposits. **2. What is the main factor limiting the amount of credit a bank can create?** (a) Interest rates (b) Bank fees (c) Capital adequacy ratio (d) Cash reserve ratio **Answer:** (d) Cash reserve ratio (CRR) **3. If a bank has a CRR of 10% and receives a deposit of $100, how much can it potentially lend out?** (a) $0 (b) $10 (c) $90 (d) $100 **Answer:** (c) $90. The bank keeps $10 (10% of $100) as reserves and can lend out the remaining $90. **4. Which of the following actions by the central bank will decrease the money supply in the e...