Question:
If in an economy the initial deposits are Rs.4,000 crore and Reserve Ratio (RR) is 10 percent. The value of total deposit created would be Rs. ______ crore.
If in an economy the initial deposits are Rs.4,000 crore and Reserve Ratio (RR) is 10 percent. The value of total deposit created would be Rs. ______ crore.
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The total deposits created in an economy are inversely proportional to the reserve ratio. A lower reserve ratio results in more money being created.
Updated On: Feb 3, 2025
- 4,000
- 40,000
- 2,000
- 20,000
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Verified By Collegedunia
The Correct Option is B
Solution and Explanation
The total deposit created in the banking system is given by the formula:
\[
{Total Deposits} = \frac{{Initial Deposits}}{{Reserve Ratio}}
\]
Substituting the given values:
\[
{Total Deposits} = \frac{4000}{0.10} = 40,000
\]
Conclusion:
The total deposit created would be Rs.40,000 crore due to the 10 percent reserve ratio.
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