If the reserve ratio is 10% and the initial deposit with the commercial banks are ₹ 450 cr, the total money creation by the banking system will be :
Answer & explanation
Correct answer: option 4
Rs 4500 Crore
The total money creation by the banking system can be calculated using the money multiplier formula:
Money Multiplier = 1/CRR
MM=1/10%
MM=10
Total Money Creation=Money Multiplier×Initial Deposit
=450*10
=Rs 4,500 Cr