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प्रश्न
‘Reserve Ratio and Credit Creation are inversely related.’ Do you agree with the given statement? Justify your answer with a suitable numerical example.
थोडक्यात उत्तर
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उत्तर
Yes, there exists an inverse relation between Reserve Ratio and Credit Creation in the economy.
We know that:
Money Multiplier = `1/"Reserve Ratio"`
Credit Creation = Initial Deposits x Money Multiplier
Assuming that the value of initial deposits is ₹ 10,000 crore.
| Reserve Ratio | Money Multiplier | Initial Deposits | Credit Creation (Initial Deposits x Money Multiplier) |
| 10% | `1/0.1 = 10` | 10,000 | 1,00,000 |
| 25% | `1/0.25 = 4` | 10,000 | 40,000 |
From the above calculation, we can conclude that higher the reserve Ratio, lesser credit will be created by Commercial Banks in the economy.
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