Discussion
Assertion (A). Bank have control over a large part of the supply of money in circulation.
Reason (R). They cannot influence the nature and character of production in any country.
Answer: B
Correct answer: (A) is true but (R) is false and it is not correct explanation of (A).
The assertion is true: through credit creation banks control a large part of the money supply, since every loan creates a deposit and the process multiplies the original cash base.
The reason is false. Banks certainly do influence the nature and character of production, precisely because they decide who receives credit - priority sector lending requirements, sectoral exposure limits and the banks' own appraisal all steer investment towards some activities and away from others. Being false, it cannot explain the assertion either.
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