Credit Creation by Commercial Banks Quiz

Play an AI-generated podcast conversation about this lesson

What is the relationship between credit creation and periods of prosperity?

Credit creation is large during periods of prosperity. (correct)

Credit creation is small during periods of prosperity.

Credit creation does not vary with periods of prosperity.

Credit creation is unpredictable during periods of prosperity.

Why does the volume of bank credit tend to be high during periods of prosperity?

High liquidity preference by people

Decreased demand for loans

Increased demand for loans and advances (correct)

Central Bank's monetary policy

What is the impact of business depression on the volume of bank credit?

Volume of bank credit becomes unpredictable

Volume of bank credit increases

Volume of bank credit remains constant

Volume of bank credit decreases (correct)

What is one reason for leakages in the process of credit creation mentioned in the text?

People keeping a portion of their amount as idle cash Signup and view all the answers

What is required for a bank to create credit according to the text?

Sound and profitable assets like bills and government securities Signup and view all the answers

How does the power of banks to create credit get affected if people desire to hold more cash?

Decreased power to create credit Signup and view all the answers

What is the primary function of a commercial bank?

Accepting deposits Signup and view all the answers

Which type of deposits are also known as demand deposits?

Current deposits Signup and view all the answers

Who mainly uses current deposits in a commercial bank?

Businessmen and industrialists Signup and view all the answers

Which type of deposit is meant for professional men and middle-class people according to the text?

Savings deposits Signup and view all the answers

What is the restriction on savings deposits regarding withdrawals?

Restriction on the amount that can be withdrawn at a particular time or during a week Signup and view all the answers

What type of deposit does not generally earn interest in a commercial bank?

Current deposit Signup and view all the answers

Why are all bills in hand shown on both sides of the balance sheet?

Because they are considered both an asset and a liability to the bank Signup and view all the answers

Why is bank capital important for protecting depositors?

It determines the bank's ability to cover loans and losses Signup and view all the answers

How do reserve accounts differ from retained earnings?

Retained earnings reduce tax liabilities, while reserve accounts are for covering unanticipated losses Signup and view all the answers

What is the significance of the proportion of capital to deposits for a bank?

Higher capital provides greater protection to depositors Signup and view all the answers

Which type of accounts represent direct investments in a bank?

Capital stock Signup and view all the answers

Why do banks maintain lower capital accounts compared to other businesses?

To reduce their tax liabilities Signup and view all the answers

What is the term used to describe the power of commercial banks to expand deposits through loans, advances, and investments?

Credit creation Signup and view all the answers

How does the cash reserve ratio affect the volume of credit that commercial banks can create?

Decreasing the cash reserve ratio increases credit creation Signup and view all the answers

What role does the banking habit of the people play in credit creation by commercial banks?

Encourages multiple expansions of credit Signup and view all the answers

Which factor mentioned in the text has the power to prescribe and change the cash reserve ratio to be kept by commercial banks?

Central Bank Signup and view all the answers

How does the nature of business conditions in the economy impact credit creation by commercial banks?

Affects the willingness of banks to lend Signup and view all the answers

Why can't all deposits be used for credit creation by commercial banks?

Cash reserve requirements Signup and view all the answers

What is the role of a commercial bank in terms of credit?

Creating credit by accepting deposits and making advances to needy people Signup and view all the answers

How does a commercial bank act as a 'mobiliser of savings'?

By keeping the deposits of households safe and providing loans to businessmen Signup and view all the answers

What is the historical connection between modern banking and the Industrial Revolution?

The Industrial Revolution led to the development of modern banking as a necessity Signup and view all the answers

How do commercial banks contribute to economic activity?

By providing loans to businesses for investment purposes Signup and view all the answers

What distinguishes a commercial bank from other financial institutions?

Accepting deposits from the public and providing credit to individuals and businesses Signup and view all the answers

In what way does a commercial bank act as a 'reservoir' in the economy?

By collecting savings and offering loans for productive purposes Signup and view all the answers

Credit Creation by Commercial Banks Quiz

Choose a study mode

Podcast

Questions and Answers

What is the relationship between credit creation and periods of prosperity?

Why does the volume of bank credit tend to be high during periods of prosperity?

What is the impact of business depression on the volume of bank credit?

What is one reason for leakages in the process of credit creation mentioned in the text?

What is required for a bank to create credit according to the text?

How does the power of banks to create credit get affected if people desire to hold more cash?

What is the primary function of a commercial bank?

Which type of deposits are also known as demand deposits?

Who mainly uses current deposits in a commercial bank?

Which type of deposit is meant for professional men and middle-class people according to the text?

What is the restriction on savings deposits regarding withdrawals?

What type of deposit does not generally earn interest in a commercial bank?

Why are all bills in hand shown on both sides of the balance sheet?

Why is bank capital important for protecting depositors?

How do reserve accounts differ from retained earnings?

What is the significance of the proportion of capital to deposits for a bank?

Which type of accounts represent direct investments in a bank?

Why do banks maintain lower capital accounts compared to other businesses?

What is the term used to describe the power of commercial banks to expand deposits through loans, advances, and investments?

How does the cash reserve ratio affect the volume of credit that commercial banks can create?

What role does the banking habit of the people play in credit creation by commercial banks?

Which factor mentioned in the text has the power to prescribe and change the cash reserve ratio to be kept by commercial banks?

How does the nature of business conditions in the economy impact credit creation by commercial banks?

Why can't all deposits be used for credit creation by commercial banks?

What is the role of a commercial bank in terms of credit?

How does a commercial bank act as a 'mobiliser of savings'?

What is the historical connection between modern banking and the Industrial Revolution?

How do commercial banks contribute to economic activity?

What distinguishes a commercial bank from other financial institutions?

In what way does a commercial bank act as a 'reservoir' in the economy?

More Like This

Credit Creation and Bank Deposits Quiz

Credit Creation by Commercial Banks Quiz

Création Monétaire et Dépôts/Crédits

Création Monétaire : Fondements et Mécanismes

Upgrade to continue