Suppose there is a fresh deposit of Rs. 10,000 in banks and cash reserve ratio is 0.5. How much is total deposit creation?

20,000

The correct answer is Option (1) → 20,000

The formula for the money multiplier is: Money Multiplier = 1 / Cash Reserve Ratio (CRR)

Given:

• Fresh Deposit = Rs. 10,000

• Cash Reserve Ratio (CRR) = 0.5

 Money Multiplier = 1 / 0.5 = 2

Total Deposit Creation = Fresh Deposit × Money Multiplier

Total Deposit Creation = Rs. 10,000 × 2 = Rs. 20,000