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Economics · 2026 · 6 marks
CBSE 2026 · Region 3 · Set 1 · Q17
Read the following passage carefully :Any institution which accepts deposits from the public and advances loans is a bank. Banks are broadly categorised into :• Commercial Banks, and• Central Bank.Commercial banks accept deposits from public and use these deposits for giving loans. Banks keep a fraction of deposits as reserves. Generally, all depositors do not demand their money at the same time. The Central Bank of a country is responsible for controlling credit creation. The Reserve Bank of India (RBI) regulates the money supply in India through its monetary policy.On the basis of the above passage and common understanding, answer the following questions :(i)State the meaning of a Bank.(ii)Mention any two traits that distinguish Central Bank from Commercial Banks.(iii)“Open market operation is the tool used by Reserve Bank of India (RBI) to regulate money supply in the economy.”Justify the given statement with valid arguments.
Read the following passage carefully :
Any institution which accepts deposits from the public and advances loans is a bank. Banks are broadly categorised into :
• Commercial Banks, and
• Central Bank.
Commercial banks accept deposits from public and use these deposits for giving loans. Banks keep a fraction of deposits as reserves. Generally, all depositors do not demand their money at the same time. The Central Bank of a country is responsible for controlling credit creation. The Reserve Bank of India (RBI) regulates the money supply in India through its monetary policy.
On the basis of the above passage and common understanding, answer the following questions :
(i)
State the meaning of a Bank.
(ii)
Mention any two traits that distinguish Central Bank from Commercial Banks.
(iii)
“Open market operation is the tool used by Reserve Bank of India (RBI) to regulate money supply in the economy.”
Justify the given statement with valid arguments.
Marking-scheme solution
(i)
A Bank is an institution which accepts deposits from the public and advances loans.
(ii)
Two traits that distinguish Central Bank from Commercial Bank are:
Commercial banks accept deposits and grant loans to the public whereas, Central bank does not directly deal with the public.
Commercial banks create credit whereas, the Central Bank is responsible for controlling credit creation in the economy.
(iii)
The Reserve Bank of India (RBI) can regulate the money supply in the economy by the sale/ purchase of government securities in the open market.
When RBI sells government securities, the availability of funds with commercial banks reduces, which in turn curtails their lending capacity. Consequently, the money supply in the economy reduces.
On the contrary, when RBI buys government securities, the availability of funds with commercial banks rises, which in turn increases their lending capacity. Consequently, the money supply in the economy rises.
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CBSE Class 12 Economics past-paper question from the 2026board exam, with the answer as CBSE’s own marking scheme gives it. Where our answers come from.