Multiple choice

When the commercial bank creates credit areas that are in effect, increases

  1. the national debt

  2. the supply of money

  3. the purchasing power of the rupee

  4. the real wealth of the country
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

When commercial banks engage in credit creation through the lending process, they generate new deposits in the banking system. This process effectively expands the overall money supply in the economy beyond the original base money, which is a core function of fractional reserve banking.

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