Which of the following statement is incorrect in the context of money supply?
Answer & explanation
Correct answer: option 4
The correct answer is option 4: The interest rate paid by the banks to depositors is more than the rate charged from the borrowers which is called the ‘spread’ and it is the profit appropriated by the bank.
Option 4 is incorrect. Banks pay lower interest to depositors (not more as mentioned) and charge higher interest from borrowers. The difference between these two rates is called the spread, and it is the bank’s profit.
Options 1, 2, and 3 correctly describe the functioning of commercial banks