Arrange the following statements related to money multiplier process in correct sequence.
(A) The bank has Rs 140 as deposits.
(B) The bank has Rs 80 to lend.
(C) A bank has a initial deposits of Rs 100 and needs to keep reserves as 20 per cent.
(D) The bank lends 50% of lending amount to Sonia.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (C), (B), (D), (A)
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C) A bank has an initial deposit of Rs 100 and must keep 20% as reserves. → So, reserves = Rs 20, lending capacity = Rs 80.
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(B) The bank has Rs 80 to lend. → This is the loanable amount after keeping the required reserves.
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(D) The bank lends 50% of the lending amount to Sonia. → Sonia borrows and spends Rs 40, which will get redeposited in the banking system.
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(A) The bank has Rs 140 as deposits. → The initial Rs 100 plus the new Rs 40 deposit leads to Rs 140 total deposits — showing the expansion of money through the multiplier process.