Read the two statements and choose the correct option.
I. High-powered money is created by the central bank.
II. Commercial banks create deposits that are a multiple of their reserves.

Only ICorrect answerYour answerOnly IICorrect answerYour answerBoth I and IICorrect answerYour answerNeither I nor IICorrect answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer C

Correct answer: C

Currency and bank reserves are liabilities of the RBI. I is true.
Banks lend most of each deposit, so deposits build up to a multiple of reserves. II is true.

Ten questions from Money Creation by Banks, at your own pace.

Ten questions from Money Creation by Banks, at your own pace.

Read the two statements and choose the correct option.I. High-powered money is created by the central bank.II. Commercial banks create deposits that are a multiple of their reserves.