Discuss any two limitations of credit creation by commercial banks.

1.	Discuss any two limitations of credit creation by commercial banks.
Answer» Limitations of credit creation by commercial banks are as follows: (i) Monetary policy of the central bank: Though commercial banks create credit, the circulation of credit is controlled by the central bank in an economy. The central bank uses various techniques to control credit circulation from time to time and thus influence commercial banks’ capacity to create credit. (ii) Borrowing habits of people: Commercial banks have sufficient funds to lend, however, not everyone in the economy borrows from banks. If fewer people borrow money from banks, leaser credit is created by commercial banks.

Answer»

Limitations of credit creation by commercial banks are as follows:

(i) Monetary policy of the central bank: Though commercial banks create credit, the circulation of credit is controlled by the central bank in an economy. The central bank uses various techniques to control credit circulation from time to time and thus influence commercial banks’ capacity to create credit.

(ii) Borrowing habits of people: Commercial banks have sufficient funds to lend, however, not everyone in the economy borrows from banks. If fewer people borrow money from banks, leaser credit is created by commercial banks.

Discussion

No Comment Found

Related InterviewSolutions

A plant is kept in a dark cupboard for about 48 hours before conducting any experiment on photosynthesis to :(A) Remove starch from the plant. (B) Ensure that starch is not translocated from the leaves. (C) Remove chlorophyll from the leaf of the plant. (D) Remove starch from the experimental leaf.
The producer of Lime Fresh’ tea introduces ‘Buy one Get one’ scheme on all the products of ‘Lime Fresh’. Identify the promotional strategy’ used by the producer. State any one objective that could be met by this strategy.
A stringed musical instrument, such as the sitar,is provided with a number of wires of different thicknesses. explain the reason for this.
Mention whether the following would result in inflow, outflow or no flow of cash :(i) Issue of fully paid Bonus Shares (ii) Cash withdrawn from Bank
State with reason whether the following would result in inflow, outflow or no flow of cash :(i) Charging depreciation on furniture. (ii) Cash withdrawn for bank for office use.
Give four points of anatomical differences between a monocot stem and a dicot stem.
State the conditions required for total internal reflection of light to take place.
State the conditions required for total internal reflection of light to take place.
(i) When does a ray of light falling on a lens pass through it undeviated ? (ii) Which lens can produce a real and inverted image of an object ?
When acoustic resonance takes place a loud sound is heard. Why does this happen ? Explain.