Arrange the following steps involved in the process of credit creation by Commercial Banks.

(A) The commercial bank lends the excess reserves to the borrowers.
(B) The borrowers deposit the loaned money in the bank.
(C) The bank keeps a portion of the lent deposit money as reserve.
(D) The initial deposit is made in the commercial bank.

Choose the correct answer from the options given below:

(D), (C), (A), (B)

The correct answer is Option (3) → (D), (C), (A), (B)

The correct arrangement of the steps involved in the process of credit creation by commercial banks is:

1. (D) The initial deposit is made in the commercial bank. The process begins with an initial deposit of money into a bank.

2. (C) The bank keeps a portion of the lent deposit money as reserve. The bank is legally required to hold a certain percentage of this deposit as a reserve, which cannot be lent out.

3. (A) The commercial bank lends the excess reserves to the borrowers. The remaining portion of the deposit (the excess reserves) is then lent out to borrowers.

4. (B) The borrowers deposit the loaned money in the bank. The borrowers use the loaned money to make payments, and the recipients of those payments deposit the money back into the banking system, restarting the cycle and creating more credit.

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