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प्रश्न
How money multiplier is related to Legal Reserve Ratio?
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उत्तर
- The relationship between the Money Multiplier and the Legal Reserve Ratio (LRR) can be expressed through the following formula:
Money Multiplier = `1/"LRR"` - The money multiplier is inversely related to the LRR. A greater LRR requires banks to maintain higher percentages of deposits as reserves, reducing their ability to lend and thus reducing the money multiplier. Conversely, a lower LRR allows banks to lend out more deposits, resulting in a bigger money multiplier.
For example, if the LRR is 10% (0.1), the money multiplier would be:
Money Multiplier = `1/0.1 = 10`
संबंधित प्रश्न
Explain the credit creation role of commercial banks with the help of a numerical example.
Answer the following question.
Explain, using a numerical example, how a reduction in reserve deposit ratio, affects the credit creation power of the banking system.
The creation of ______ is called credit creation.
Credit creation by the commercial bank is determined by ______.
Suppose in an economy, the initial deposit of ₹ 400 crores lead to the creation of total deposits worth ₹ 4000 crore. Then the value of reserve requirements would be ______.
Match the following:
| Column I | Column II | ||
| A. | Primary deposits | (i) | Payable on demand |
| B. | Derivative deposits | (ii) | Deposits for a fixed period of time |
| C. | Demand deposits | (iii) | Cash deposits of people |
| D. | Term deposits | (iv) | Deposits created by banks (or loan deposits) |
What is meant by credit creation?
What is money multiplier?
Why are the banks required to keep only a fraction of deposits as cash reserves?
The deposit multiplier formula is ______.
