Class 12 Macro Economics: Banking
Chapter 6: Money and Banking — understand how commercial banks accept deposits, advance loans, and create credit, and learn the central bank functions and monetary policy instruments used to control money supply. CBSE Class 12 Macroeconomics notes covering 4 topics: Commercial Banks, Money Creation by Commercial Banks, Central Bank Functions and Role, and Credit Control Instruments of Monetary Policy.
Topics(4)
Commercial Banks
Meaning, importance, and functions of commercial banks — accepting deposits, advancing loans, and secondary services. CBSE Class 12 Macroeconomics notes
Money Creation by Commercial Banks
Credit creation process, primary vs secondary deposits, money multiplier formula, and numerical examples. CBSE Class 12 Macroeconomics notes
Central Bank — Functions and Role
Introduction to the central bank (RBI), its functions as currency authority, banker to government, banker's bank and supervisor, and custodian of foreign exchange reserves. CBSE Class 12 Macroeconomics notes
Credit Control — Instruments of Monetary Policy
Quantitative and qualitative instruments used by RBI to control money supply and credit. CBSE Class 12 Macroeconomics notes
Questions by Textbook
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Frequently Asked Questions
<p>Read the following statements carefully : Statement 1 : The government may reduce the repo rate, to control deflationary gap prevailing in the economy. Statement 2 : The government may reduce the deflationary gap, by selling off government securities (G-Sec) in the open market. In the light of the given statements, choose the correct option from the following :</p>
(D) Both Statements 1 and 2 are false.
<p>(a) Elaborate the process of Credit Creation using a suitable numerical example. (b) Read the following text carefully : "This function of money provides different items to be evaluated against a common standard. It allows comparison of prices and keeping financial records." (i) On the basis of the given text, identify the indicated function of money. (ii) List any other two functions of money.</p>
(a) Credit Creation Process: Numerical Example: Initial Deposit = Rs. 1,000 crore Reserve Ratio (LRR) = 20% Round 1: Bank receives deposit of Rs. 1,000 crore Keeps 20% (Rs. 200 crore) as reserve Lends Rs. 800 crore Round 2: Rs. 800 crore deposited back Keeps 20% (Rs. 160 crore) as reserve Lends R…
<p>If in an economy Bank rate is increased, how will it affect the demand for credit ? Explain.</p>
When Bank Rate is increased, the demand for credit decreases. Explanation: 1. Bank Rate is the rate at which central bank lends to commercial banks for long-term needs 2. Increase in Bank Rate increases cost of borrowing for commercial banks 3. Commercial banks increase their lending rates to maint…