Suppose a bank has an initial deposit of ₹200. The required cash reserve ratio is 20%. Then what will be the total money supply in an economy?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → 1000
Given:
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Initial deposit = ₹200
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CRR = 20 percent or 0.20
Money Multiplier= 1 /CRR
Money Multiplier= 1 / 0.20 = 5
Total Money Supply=Initial Deposit×Money Multiplier
=200×5=1000