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...

Introduction The theories of demand for money can be mainly divided into four parts. They are: 1. Monetary demand theory 2. Keynesian monetary demand theory 3 Keynesian and post-Keynesian monetary demand theories; 4. Friedman's theory of modern monetary demand. It can be said that Irving Fisher was the first to formulate the theory of traditional monetary demand. Later, this theory, with some modifications, was developed by Cambridge economists such as Alfred Marshall, A. C. Pigou, D. H. Robertson, etc. in the form of the Cambridge equation. Later, Keynes' Mahasaya was a critical critic of the traditional monetary demand theory and introduced an alternative monetary demand theory. This theory of Keynes can be found in Keynes' book "General Theory" published in 1936. .  Importance of monetary dem and To know the equilibrium level of the money market in an economy, it is essential to study money demand. Equilibrium between money demand and supply is called money ma...