Economics · Money and Banking
Actual bank credit creation may not increase strictly in proportion to every increase in primary deposits because:
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The public's desire to hold cash remains invariant.
- 2The velocity of circulation of money remains constant.
- 3Banks face leakages in the credit creation process such as currency drains and excess reserves.✓
- 4The marginal propensity to save remains completely constant.
Correct answer
Banks face leakages in the credit creation process such as currency drains and excess reserves.
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