Qualitative Credit Control

Qualitative Credit Control - multiple of the original cash...

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Qualitative Credit Control : Sometimes quantitative credit control measures are inadequate or are likely to be harmful. Quantitative methods apply uniformly and to the same extent to all bankers. But if the central bank finds that only a few or specific bankers are misbehaving then it has to apply qualitative methods to individual bankers. These may be in the form of special reserve requirement, moral appeal and advise or even direct action against defaulting bankers. Money Multiplier: It has been observed in a previous section that commercial banks can make total credit supply which is a certain
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Unformatted text preview: multiple of the original cash deposits. The extent to which such an expansion of credit can be made is called money multiplier. It is a reciprocal of the reserve requirement (which represents the tendency of people to withdraw cash). If the reserve requirement (RR) is 10 percent, the multiplier value is 10, and if RR = 8 percent, the multiplier value will be 12.5. Similarly, when RR=12 percent, the multiplier will be 8.33 Money Multiplier = 1/RR = 1/0.1 = 10, 1/0.08 = 12.6, 1/0.12 = 8.3. Money multiplier thus varies inversely with the value of RR....
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This note was uploaded on 11/17/2011 for the course EC ec 201 taught by Professor - during the Fall '10 term at Montgomery.

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