How much total credit creation can bank

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Target Exam

CUET

Subject

Economics

Chapter

Macro Economics: Money and Banking

Question:

How much total credit creation can bank creates with Cash Reserve Ratio of 20% when bank's reserves are Rs. 1000.

Options:

5000

10000

2000

4000

Correct Answer:

5000

Explanation:

The correct answer is Option (1) → 5000

Given:
CRR = 20% = 0.20
Reserves = ₹1000

Money Multiplier = 1/ CRR = 1/ 0.20 =5

Total Credit Creation= Reserves×Credit Multiplier = 1000×5 = ₹5000