Read the following statements - Assertion (A) and Reason (R):
Assertion: The currency issued by the commercial banks is called monetary base.
Reasoning: The monetary base acts as a basis for credit creation.
From the given alternatives choose the correct one:
Answer & explanation
Correct answer: option 4
The correct answer is Option 4: Assertion (A) is false but Reason (R) is true.
Explanation:
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Assertion (A): The currency issued by commercial banks is called the monetary base. This is false because the monetary base, or high-powered money, is issued by the central bank, not commercial banks. The central bank issues currency and also holds reserves that commercial banks use.
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Reason (R): The monetary base acts as a basis for credit creation. This is true. The monetary base is essential for credit creation because commercial banks use the reserves (part of the monetary base) to issue loans, which leads to the creation of additional money in the economy.