Q. 21

How, in your opin

Answer :

The credit creation by commercial banks accelerate the pace of economic growth in the following manner:

a. A commercial bank provides loans and bonds to the household as well as small-medium enterprises to run their business.


b. It accepts money from the household and invests this money into a profitable investment.


c. If the commercial bank can increase the amount of money in circulation either by creating credit or reducing the rate of interest it directly affects the pace of economic development.


d. It helps in bringing price stability.


e. It helps to increase the volume of production of goods.


f. Many commercial banks have now opened new branches in rural and backward areas. This has led to a reduction in the exchange of goods to the barter system.


g. The act as a link between the surplus and deficit economic agents and facilitates their business.


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