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Question
What is money multiplier?
Solution
Money Multiplier is the multiple by which total deposit increases due to initial deposits (primary deposits).
RELATED QUESTIONS
Explain the concept of ‘inflationary gap’. Also explain the role of ‘legal reserves’ in reducing it.
Answer the following question.
What role does it play in determining the credit creation power of the banking system? Use a numerical illustration to explain.
Answer the following question.
Explain, using a numerical example, how a reduction in reserve deposit ratio, affects the credit creation power of the banking system.
______ is the rate of interest charged by the central bank on loans given to the commercial bank.
What do you mean by credit creation by commercial banks?
Access to adequate and timely credit at affordable rates is critical for the rural poor to alleviate high cost debt and invest in livelihood opportunities. Despite the Government of India's best efforts, financial inclusion of the rural poor has been beset with multiple challenges. Lack of adequate banking infrastructure and human resources in rural areas, unplanned expansion leading to unviable bank branches and low levels of financial literacy amongst the rural populace have been some of the key challenges.
The most vulnerable communities, who often had no formal credit history or ability to provide collateral, have often been the worst affected. Inability to access loans from banks meant that the poorest had to resort to moneylenders for loans at unreasonably high rates of interest that invariably led them into a toxic debt trap.
In this context, the SHG-Bank Linkage programme, formalised by the National Bank for Agriculture and Rural Development (NABARD) in 1995, synthesizes 'formal financial systems' (in terms of a formal institution providing credit) with the 'informal sector' (comprising of rural poor with no formal credit history), has emerged as a preferred vehicle for providing financial services to the hitherto unbanked poor.
Community Based Repayment Mechanisms (CBRMs) have been institutionalised at branches involved in financing SHGs to monitor and ensure timely repayment of loans by SHGs. The number of SHGs with outstanding bank loans stands at nearly 5 million today, implying that the program has brought formal banking services to over 50 million women.
Which of the following is likely to be the MAIN objective of this programme?
''The process of credit creation by commercial banks comes to an end when the total of required reserves become equal to the initial deposits."
With the help of a numerical example, prove that the given statement is true.
Deposits made by the people from their own resources are called ______.
Explain briefly the process of credit creation by commercial banks.
What are secondary (derivative) deposits?
