BANKING AFFAIRS

Detailed explanation-1: -Credit creation is the expansion of deposits, banks can expand their demand deposits as a multiple of their cash reserves because demand deposits serve as the principal medium of exchange. Hence the power of the commercial banks to expand deposits through expanding their loans and advances is known as credit creation.

Detailed explanation-2: -Answer: Credit creation is the expansion of deposits where the banks expand their demand deposits as a multiple of their cash reserves.

Detailed explanation-3: -Answer: Commercial banks can expand the deposits they receive through loans, resulting in an expansion of the monetary base of a country. This is credit creation.

Detailed explanation-4: -In the process of credit creation, banks keep some share of their deposits as minimum reserves to meet the demand of their depositors. Thus, banks lend out the excess reserves for loans and investment purposes, and the interest earned becomes income for the banks.

Detailed explanation-5: -A demand deposit account (DDA) is a bank account from which deposited funds can be withdrawn at any time, without advance notice. DDA accounts can pay interest on the deposited funds but aren’t required to. Checking accounts and savings accounts are common types of DDAs.