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The banking system can create credit primarily because depositors
Amust give one year's notice
Bearn no interest on deposits
Cdo not all withdraw at the same time
Dare legally barred from withdrawing
Answer & Solution
Correct answer: C. do not all withdraw at the same time
1. A bank holds deposits it has promised to repay on demand.
2. In practice **not every depositor withdraws at once**.
3. So a bank can safely lend out part of those funds, and the loan reappears as a new deposit.
4. That repetition is what creates credit. Depositors are not barred from withdrawing, which is precisely why a reserve is still required.
_Source: NCERT Class 12 Introductory Macroeconomics, Ch 3 "Money and Banking", section 3.3 MONEY CREATION BY BANKING SYSTEM_
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