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Banks and Their Functions

The central b...

Question

The central bank controls credit but commercial banks create credit. State true or false.

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Solution

True. The commercial banks, through the credit multiplier process, create credit.

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Q. State whether the following statements are TRUE or FALSE.

1. Credit rationing is quantitative credit control measure of Central bank.
2. Regulation of Consumer Credit is a quantitative credit control measure of Central Bank.
3. Bank Rate is the selective credit control measure used by the Central Bank of the country.
4. Central Bank also performs commercial banking business.
5. The main objective of a Central Bank is to earn profit.

Q. Commercial bank creates credit.

On what basis do commercial banks create credit?

Commercial banks create credit only on the instruction of the government. Is this true?

Q. How does central bank control credit creation by commercial banks through open market operations? Explain.

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