Multiple choice

Credit creation is possible only

  1. by RBI

  2. by one commercial bank

  3. when several commercial banks join hands

  4. none of these

Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Credit creation through the multiplier process requires a banking system where multiple banks can lend out their excess reserves, which then become deposits in other banks, continuing the cycle. A single bank cannot significantly expand credit because when borrowers spend the loans, deposits leave that bank, draining its reserves.

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