Arrange the following steps involved in the process of credit creation by Commercial Banks. (A) The commercial bank lends the excess reserves to the…

Option 3: (D), (C), (B), (A) -> The credit creation process by commercial banks follows this sequence: First, an initial deposit is made in the commercial bank (D), which forms the base for credit creation. Then, the bank keeps a portion of this deposit as a reserve to meet the Cash Reserve Ratio requirements (C). Next, borrowers deposit the loaned money back in the bank (B), creating new deposits in the banking system. Finally, the commercial bank lends the excess reserves to new borrowers (A), and this cycle continues, resulting in a multiplier effect where the total money supply in the economy increases beyond the initial deposit. This process demonstrates how banks create credit through the fractional reserve banking system. -> correct