Macroeconomics: Money and Banking · Class 12 · CBSE · Commerce Economics
If the cash reserve ratio is 20% and banks lend all their excess reserves, with no cash leakages, an initial deposit of ₹10,000 can lead to a maximum…
Practice question from Macroeconomics: Money and Banking (Class 12 · CBSE · Commerce Economics), with the correct answer and a step-by-step solution.
hard · MCQ · Q-ABCB18
If the cash reserve ratio is 20% and banks lend all their excess reserves, with no cash leakages, an initial deposit of ₹10,000 can lead to a maximum total deposit creation of:
- A.₹12,000
- B.₹20,000
- C.₹40,000
- D.₹50,000Correct answer
Solution
The deposit multiplier is . Therefore, maximum total deposit creation is .
More from Macroeconomics: Money and Banking
- Which function of money is reflected when a person keeps money in a savings account to use it for purchasing goods in the future?
- Which action by the central bank is most likely to reduce the money supply in the economy?
- Why is the central bank called the lender of last resort?
- Which statement correctly describes demand deposits with commercial banks?
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