Question

Choose the correct alternative to complete the given schedule: 

• A. 2000, 1620, 20000, 18000
• B. 1800, 180, 2000, 18000
• C. 1620, 180, 2000, 18000
• D. 1800, 1620, 20000, 18000

Hint:

The total money supply depends on the money multiplier effect, which expands deposits through the credit creation process.

Answer 1

The Correct Option is D

This question relates to the credit creation process where: 1. Deposits in Round II = 1800 (from Loans of Round I)
2. Loans in Round II = 90% of Deposits in Round II = 1620
3. Total Deposits = Initial Deposit × Money Multiplier
- Money Multiplier = \( \frac{1}{\text{Reserve Ratio}} = \frac{1}{0.10} = 10 \)
- Total Deposits = \( 2000 \times 10 = 20000 \)
- Total Loans = Total Deposits - Reserves = \( 20000 - 2000 = 18000 \) Conclusion: Thus, the correct values are (i) 1800, (ii) 1620, (iii) 20000, (iv) 18000, making option (D) correct.