Q.The LRR is 25% and Bank A receives a fresh deposit of ₹8,000. Show the first three rounds of credit creation and find the total credit created by the banking system.

The current account possesses the most liquidity — option (c) — because funds can be withdrawn on demand any number of times without restriction.

Commercial banks offer several deposit accounts:

• Current account — meant for businesspersons; money can be deposited and withdrawn any number of times on demand, so it is the most liquid, but usually earns no interest.
• Saving account — has some limits on withdrawals; moderately liquid with small interest.
• Fixed (term) deposit — locked for a fixed period; least liquid, highest interest.
• Recurring deposit — fixed monthly instalments for a set term; low liquidity.

Since 'more liquidity' means the easiest, unrestricted access to money, the current account wins.

Total credit creation = Primary deposit × 1/CRR (credit multiplier = 1 ÷ Cash Reserve Ratio).

Commercial banks keep only a fraction of every deposit as reserves (the Cash Reserve Ratio, CRR) and lend out the rest, which returns to the banking system as fresh deposits, and the process repeats. The total credit the banking system can create from an initial deposit is given by the formula:

$\text{Total credit} = \text{Primary deposit} \times \frac{1}{\text{CRR}}$

Here 1/CRR is the credit (deposit) multiplier. For example, a primary deposit of ₹1,000 with a CRR of 10% (0.10) creates total credit of ₹1,000 × (1/0.10) = ₹10,000. A lower CRR means a larger multiplier and more credit creation.

The first real bank in the world was set up in Spain — option (d).

The history of banking in the GSEB Class-12 course notes that organised public banking began in early European city-states. The first real bank is credited to Spain, the Bank of Barcelona being an early and widely cited public bank that accepted deposits and facilitated payments. Among the given choices — France, U.S.A., Norway and Spain — the textbook answer is Spain.