Question

If Reserve Ratio is 10% and Primary deposit is ₹ 1250 crores, the total deposits created by commercial banks will be ______.

Options

• ₹ 13,500 crores

• ₹ 10,000 crores

• ₹ 12,500 crores

• ₹ 11,500 crores

Answer 1

If Reserve Ratio is 10% and Primary deposit is ₹ 1250 crores, the total deposits created by commercial banks will be ₹ 12,500 crores.

Explanation:

The deposit multiplier is the reciprocal of the reserve ratio, and total deposits equal the multiplier times the primary deposit.

Primary Deposit = ₹1,250 crores

Reserve Ratio = 10% = 0.10

Calculate the Money Multiplier:

\(\text{Money\ Multiplier}=\frac{1}{10\%}=\frac{1}{0.10}=10\text{\ times}\)

Compute Total Deposits:

Total Deposits = 1,250 crores × 10

= 12,500 crores