Currency is issued by central bank yet we say that commercial banks create money. Explain, How is this money creation by commercial banks likely to affect the nationalincome?

Currency is issued by central bank yet we say that commercial banks cr

1.	Currency is issued by central bank yet we say that commercial banks create money. Explain, How is this money creation by commercial banks likely to affect the nationalincome?
Answer» Solution :Money supply has two components namely CURRENCY HELD by the people and demand deposits with commercial banks.It is by creating additional demand deposits in the guise of ADVANCING loans with commercial bank are said to create money ( credit ) . When commercial banks LEND money to investors, they invest in productive acitivities leading to rise in national income through multipliereffect.

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Currency is issued by central bank yet we say that commercial banks create money. Explain, How is this money creation by commercial banks likely to affect the nationalincome?

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