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 1, 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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