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WAEC Economics 1998 Question 26

Question 26

Financial Institutions

Banks create money by

  1. A.giving drafts to customers
  2. B.printing more money
  3. C.lending out deposits to borrowers
  4. D.issuing cheques
  5. E.depositing excess cash in the tills
Show the answer and explanation

Answer: C (lending out deposits to borrowers)

Explanation

When banks lend part of their deposits, the loans become new deposits, creating money.