The table below shows the money creation process of a bank when the Cash Reserve Ratio is 20 per cent (amounts in Rs).
What will be the deposit in the bank in round 3?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Rs 244.00
Given:
Deposit in round 2 = Rs 180.00
Loan made in round 2 = Rs 64.00
What the bank lends in one round comes back as a deposit in the next round. So the round 3 deposit is the round 2 deposit plus the round 2 loan.
\( \text{Deposit in round 3} = 180 + 64 = \text{Rs } 244 \)
Rs 216.00 wrongly adds the required reserve (Rs 36), which the bank keeps with the RBI and does not lend.
NCERT (2026-27): “3.3.2 Limits to Credit Creation and Money Multiplier … The process keeps repeating itself till all the required reserves become Rs 100. The required reserves will be Rs 100 only when the total deposits become Rs 500. This is because for deposits of Rs 500, cash reserves would have to be Rs 100 (20 per cent of 500 = 100). The process is illustrated in Table 3.2.”
“The first column lists each round. The second column depicts the total deposits with the bank at the beginning of each round. Twenty per cent 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.” |
