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WBCS Main Examination 2023 — Paper V: Indian Constitution and Economy · Question 198 of 200

Q198
Indian EconomyMoney, Banking & Financial Institutions
How do commercial banks create money?
  1. a.By printing money
  2. b.By lending a part of its deposits
  3. c.By issuing ATM cards
  4. d.By borrowing from the Reserve Bank

Answer: (B) By lending a part of its deposits

Banks keep only a fraction of deposits as reserves and lend the rest; the loans are redeposited and re-lent, multiplying deposits — this is credit creation. Banks do not print money, and ATM cards or borrowing from the RBI do not create money in this sense.

Q197 Whole paperQ199