Given a cash reserve ratio of 50 per cent and reserves of Rs 100, what is the money multiplier?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → 2
Given:
Cash reserve ratio (CRR) = 50 per cent = 0.5
Reserves = Rs 100
A bank keeps only a part of its deposits as reserves and lends the rest. The money multiplier shows how many times the reserves can support deposits. It equals 1 divided by the CRR.
Money multiplier = 1 ÷ 0.5 = 2
The multiplier depends only on the CRR, so the Rs 100 of reserves does not enter this working.
NCERT (2026-27): Introductory Macroeconomics — Chapter 3: Money and Banking
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