Suppose an initial cash deposit of INR 100 crores has been made in a commercial bank where a total credit of INR 500 crores has been created in the economy. The required reserve ratio in this country is ...............
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → 20%
Total credit created = ₹500 crores
Initial deposit (cash reserve) = ₹100 crores
The credit multiplier (K) is given by:Total Credit / Initial Deposit = 500 / 100 = 5
K = 1/Required Reserve Ratio (RRR)
5 = 1/Required Reserve Ratio (RRR)
RRR = 1/ 5 = 0.20 or 20%