Money Multiplier Process

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 is the total loan amount given by the Bank in the above example.

400.00

The correct answer is option (3) : 400.00

Since the bank is only expected to keep 20 per cent of its deposits as reserves, thus, reserves of Rs 100 (20per cent of 500 = 100) can support the deposits of Rs 500.