Match List-I with List-II.
Suppose initial deposits are of 10,000. Match the total deposits created.
| List-I | List-II | ||
| (A) | CRR = 20% | (I) | Total deposits = 20,000 |
| (B) | CRR = 40% | (II) | Total deposits = 16,667 |
| (C) | CRR = 50% | (III) | Total deposits = 50,000 |
| (D) | CRR = 60% | (IV) | Total deposits = 25,000 |
Choose the correct answer from the options given below :
Answer & explanation
Correct answer: option 3
The correct answer is option (3) : (A)-(III), (B)-(IV), (C)-(I), (D)-(II)
The Cash Reserve Ratio (CRR) is the percentage of a bank's total deposit that it is required to keep with the central bank (in this case, the Reserve Bank of India) as a reserve. The total deposits that a bank can create in the economy are determined by the reciprocal of (1 - CRR).
Let's calculate the total deposits for each scenario :
(A) CRR = 20%
Total Deposits = $\frac{Initial \, Deposit }{(1-CRR)}$
Total Deposits = $\frac{10,000}{(1-0.20)}$
Total Deposits = $\frac{10,000}{0.80}$
Total Deposits = 50,000
(B) CRR = 40%
Total Deposits = $\frac{Initial \, Deposit}{(1-CRR)}$
Total Deposits = $\frac{10,000}{(1-0.40)}$
Total Deposits = $\frac{10,000}{0.60}$
Total Deposits = 25,000
(C) CRR = 50%
Total Deposits = $\frac{Initial \, Deposit}{(1-CRR)}$
Total Deposits = $\frac{10,000}{(1-0.50)}$
Total Deposits = $\frac{10,000}{0.50}$
Total Deposits = 20,000
(C) CRR = 60%
Total Deposits = $\frac{Initial \, Deposit}{(1-CRR)}$
Total Deposits = $\frac{10,000}{(1-0.60)}$
Total Deposits = $\frac{10,000}{0.40}$
Total Deposits = 16,667