How much total credit creation can bank creates with Cash Reserve Ratio of 20% when bank's reserves are Rs. 1000.
Answer & explanation
Correct answer: option 1
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