Question

Mention any one factor affecting credit creation by banks.

Answer 1

$THETOTALAMOUNTOFCASHINTHECOUNTRY$

The banks have power to create deposits depending upon the total supply of cash. The Central Bank of a country has the monopoly power to issue currency notes.

The quantity of money in circulation increases with the issue of more currency and vice versa. Hence, the increased money supply or circulation enables the banks to create more credit. If the supply decreases the banks capacity to create credit will be decreased.