Given a cash reserve ratio of 20 percent, reserves of Rs 100 create deposits of _____.

Rs. 500

The correct answer is Option (3) → Rs. 500

The money multiplier (deposit multiplier) shows how much total deposits can be created with a given amount of reserves.

Money Multiplier=1 / Cash Reserve Ratio (CRR)

CRR = 20% = 0.20

Money Multiplier= 1 / 0.2 = 5

So, with reserves of Rs 100: Total Deposits=100×5=500