Question 36
Financial InstitutionsA commercial bank is able to create money
- A.by printing it
- B.by maintaining reserves
- C.by creating a demand deposit as it gives a new loan
- D.by issuing cheques to depositors
- E.by borrowing from the Central Bank.
Show the answer and explanation
Answer: C (by creating a demand deposit as it gives a new loan)
Explanation
When a bank grants a loan it credits the borrower's account, creating a new deposit that is money.