Question

Sequence the working of money multiplier in correct order: A. RBI injects High Powered Money, B. Banks keep required reserves, C. Banks receives deposits, D. Banks gives loans, E. Deposit expansion.

• A. A, C, B, D, E
• B. A, B, E, D, C
• C. D, A, B, C, E
• D. D, A, C, B, E

Hint:

Money multiplier works through deposits, reserves, lending, and repeated deposit creation.

Answer 1

The Correct Option is A

Concept: Money multiplier explains how an initial injection of high-powered money creates multiple expansion of deposits through the banking system.

Step 1: RBI injects high-powered money.
The process starts when the central bank injects high-powered money. \[ A = \text{RBI injects high powered money} \]

Step 2: Banks receive deposits.
This money enters the banking system as deposits. \[ C = \text{Banks receive deposits} \]

Step 3: Banks keep required reserves.
Banks keep a fraction as required reserves. \[ B = \text{Banks keep required reserves} \]

Step 4: Banks give loans.
The remaining amount is lent out. \[ D = \text{Banks give loans} \]

Step 5: Deposit expansion takes place.
Loans create new deposits and money supply expands. \[ E = \text{Deposit expansion} \] Thus, the correct sequence is: \[ A, C, B, D, E \]