Answer to Question #315351 in Macroeconomics for Maya

Question

How do the banks create creadit control?

Answer 1

Banks like any other financial firms are there in the market to make profits through selling of their various financial services/products to their customers.credit creation is one of the major bank products.

commercial banks create credit by advancing loans.They lend money to customers out of deposits accepted and collected from depositers-expansion of deposits which serves as principal for this exchange.

Banks control their created credit by keeping part of their deposits as aminimum reserve to meet the demand for it customers and lend the remaining to earn incomes through interest rates.