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.

From the above table, find cash reserve ratio.

0.2

The correct answer is option (3) : 0.2

The Cash Reserve Ratio (CRR) is the ratio of the required reserve to the total deposit. It can be calculated using the formula :

CRR = $\frac{\text{Required Reserve}}{\text{Total Deposit}}$

Let's calculate it for the last round :

CRR = $\frac{100.00}{500.00}=0.2$