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Economics · 2026 · 3 marks
CBSE 2026 · Region 2 · Set 1 · Q12
“When initial deposits in the credit creation process remains same, the total amount of credit created rises as the value of money multiplier increases.”Defend or refute the above statement with the help of hypothetical numerical example.“The Central Bank maintains reserves of all commercial banks and use to settle interbank claims.”Do you agree with the given statement ? Give valid explanation in support of your answer.
“When initial deposits in the credit creation process remains same, the total amount of credit created rises as the value of money multiplier increases.”
Defend or refute the above statement with the help of hypothetical numerical example.
“The Central Bank maintains reserves of all commercial banks and use to settle interbank claims.”
Do you agree with the given statement ? Give valid explanation in support of your answer.
Marking-scheme solution
The given statement is defended.
| Case | Initial Deposits | Money Multiplier $\displaystyle \left(\dfrac{1}{RR}\right)$ | Credit Created (Initial Deposit x Money Multiplier) |
| I | $\displaystyle 1,000$ | $\displaystyle 4$ | $\displaystyle 1,000$ x $\displaystyle 4$ = ₹ $\displaystyle 4,000$ |
| II | $\displaystyle 1,000$ | $\displaystyle 5$ | $\displaystyle 1,000$ x $\displaystyle 5$ = ₹ $\displaystyle 5,000$ |
The above example depicts that there exists a direct relationship between money multiplier and the total amount of credit created by the commercial banks.
Yes. The Central Bank acts as the banker to banks and performs the clearing house function. Since, it maintains the cash reserves of all commercial banks it becomes convenient for the Central Bank to settle their mutual claims. The Central Bank adjusts these obligations by making entries without any physical transfer of cash. This process ensures smooth, quick and efficient settlement of such interbank transactions.
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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.