Read the following statements - Assertion (A) and Reason (R)carefully and choose the correct alternative given below:
Assertion (A) :Commercial banks create money by the way of demand deposits.
Reason (R):M1 is the most commonly used measure of money supply.
Answer & explanation
Correct answer: option 3
The correct answer is Option 3: Assertion (A) is true but Reason (R ) is false
Assertion (A) :Commercial banks create money by the way of demand deposits. This is true. Commercial banks do create money through demand deposits. When banks accept deposits, they can lend out a portion of those deposits, thereby creating new money in the form of additional deposits in the economy.
Reason (R):M1 is the most commonly used measure of money supply. This is false. M3 is the most commonly used measure of money supply.