Question

In a hypothetical economy, the Cash Reserve Ratio (CRR) is \(20\%\) and the initial deposit is \(\₹100\). How much money can the bank lend in the first round?

• A. \(\₹80\)
• B. \(\₹100\)
• C. \(\₹120\)
• D. \(\₹90\)

Hint:

If CRR is \(20\%\), then bank keeps \(20\%\) as reserve and lends the remaining \(80\%\).

Answer 1

The Correct Option is A

Concept:
Cash Reserve Ratio means the percentage of total deposits that a commercial bank must keep as reserve with the central bank. The bank cannot lend the CRR amount. So, the amount available for lending is: \[ \text{Loanable amount} = \text{Initial Deposit} - \text{Required Reserve} \]

Step 1: Write the given values.
The initial deposit is: \[ \₹100 \] The Cash Reserve Ratio is: \[ 20\% \]

Step 2: Calculate the required reserve.
Required reserve is: \[ \text{Required Reserve} = 20\% \times 100 \] \[ = \frac{20}{100} \times 100 \] \[ = \₹20 \] So, the bank must keep: \[ \₹20 \] as reserve.

Step 3: Calculate the amount that can be lent.
The bank can lend the remaining amount: \[ \text{Loanable amount} = 100 - 20 \] \[ = \₹80 \]

Step 4: Final conclusion.
Therefore, the bank can lend: \[ \boxed{\₹80} \] Hence, the correct answer is: \[ \boxed{\text{(A) } \₹80} \]