alleryStart learning →Work out the credit the banking system can create.
Exercise and reference answers
- Questions
- Answer
- 80
- Question
- CRR is 20%. A deposit of Rs 100 arrives. How much can be lent in the first round?
- Answer
- 500
- Question
- Reserves of Rs 100 with a 20% reserve ratio support total deposits of how much?
- Answer
- 400
- Question
- If the reserve ratio rises to 25%, Rs 100 of reserves now supports deposits of?
- Answer
- 4
- Question
- Money multiplier when the reserve ratio is 25% (as a number)?
- Instructions
- Type the number. Rupees, no symbols.
Explanation
Lendable amount = deposit minus required reserve = 100 - 20 = Rs 80. Total deposits supported = reserves ÷ reserve ratio
so 100 ÷ 0.20 = Rs 500. At 25 per cent that becomes 100 ÷ 0.25 = Rs 400, and the multiplier is 1 ÷ 0.25 = 4. A higher ratio always shrinks the ceiling.