If the required reserve ratio in an economy is 12.5%, the initial cash deposits of ₹2000 will increase the money supply by ____.

₹16000

The correct answer is Option (2) → ₹16000

Required Reserve Ratio (RRR) = 12.5% = 0.125
Initial cash deposit = ₹2000

Money Multiplier=1 / Required Reserve Ratio (RRR)

                           = 1 / 0.125 = 8

Total Money Supply=Initial Deposit × Money Multiplier

                                = 2000 * 8 = 16,000