The correct answer is (c). Banks create credit by advancing loans and purchasing securities.
When a bank advances a loan, it creates new money by crediting the borrower’s account with the amount of the loan. The borrower can then use this money to make purchases or investments. When a bank purchases securities, it is essentially lending money to the issuer of the securities. The issuer of the securities then uses this money to finance its operations.
Both of these activities create new money and contribute to the expansion of the money supply.
(a) Advancing loans is a common way for banks to create credit. When a bank lends money to a borrower, it creates new money by crediting the borrower’s account with the amount of the loan. The borrower can then use this money to make purchases or investments.
(b) Purchasing securities is another way for banks to create credit. When a bank purchases securities, it is essentially lending money to the issuer of the securities. The issuer of the securities then uses this money to finance its operations.
(d) Neither (a) nor (b) is correct. Banks create credit by both advancing loans and purchasing securities.