passwella.
Menu

GCE Economics 1990 Question 36

Question 36

Financial Institutions

The amount of money to be created by commercial banks is actually influenced by the

  1. A.legal reserve ratio
  2. B.external reserve
  3. C.external borrowing
  4. D.availability of money and capital market
  5. E.bank deposits.
Show the answer and explanation

Answer: A (legal reserve ratio)

Explanation

Credit creation depends on the reserve (cash) ratio: the higher the required ratio, the less banks can lend.