Question

If the total deposits created by commercial banks is 10,000 crores and legal reserve requirements are 10%, the number of initial deposits will be ______

Options

• ₹1,000 crores

• ₹2,000 crores

• ₹5,000 crores

• ₹9,000 crores

Answer 1

If the total deposits created by commercial banks are 10,000 crores and legal reserve requirements are 10%, the number of initial deposits will be ₹1,000 crores.

Explanation:

Legal Reserve Requirment (LRR) is 10% or 0.1 and Money Multiplier  = `1/"LRR"`

Money Multiplier = `1/0.1 = 10`

If total deposits created is of ₹10,000 crores

Initial Deposits = Total Deposit/Money Multiplier = `(10,000)/10`

Initial Deposites = ₹1,000 crore