Money Multiplier Process
| Column 1 | Column 2 | Column 3 | Column 4 |
| Round | Deposit in Bank | Required Reserve | Loan made by Bank |
| 1 | 100.00 | 20.00 | 80.00 |
| 2 | 180.00 | 36.00 | 64.00 |
| - | - | - | - |
| - | - | - | - |
| - | - | - | - |
| - | - | - | - |
| - | - | - | - |
| Last | 500.00 | 100.00 | 400.00 |
The first column lists each round. The second column depicts the total deposits with the Bank at the beginning of each round. Twenty percent of these deposits need to be deposited with the RBI as required reserves (column 3). What the Bank lends in each round gets added to the deposits with the bank in the next round. Column 4 indicates the Loans made by the banks.
What are the total deposits created if CRR is 20% and the initial deposit is ₹200 ?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → 1000
Given:
CRR = 20% = 0.2
Initial deposit = ₹200
Total deposits are the initial deposit multiplied by the money multiplier, which is 1 divided by the cash reserve ratio (CRR).
Money multiplier = 1 / 0.2 = 5
Total deposits = 200 × 5
Total deposits = ₹1000
NCERT (2026-27): Introductory Macroeconomics — Chapter 3: Money and Banking
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