If total deposits created is ₹10,000 Crores and Cash Reserve Ratio (CRR) is 20%, then the initial deposits will be ₹ ___________ crores.
Answer & explanation
Correct answer: option 2
The correct answer is option (2) : 2000
Money Multiplier = 1/ CRR
= 1/20 %
= 5
Initial Deposits will be equal to 1/5 of total deposits i.e. (1/5) * 10,000 = 2,000
[Since the bank is only expected to keep 20 per cent of its deposits as reserves, thus, reserves of Rs 2000 (20per cent of 10000 = 2000) can support the deposits of Rs 10,000. In other words, the bank can give a loan of Rs 8000 on intial deposit of Rs 2,000]