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Money Creation by Banks · Question 43 of 58

Question 43

HardOriginal question

The legal reserve ratio is 10% but banks choose to keep 20% of deposits as reserves. A fresh deposit of ₹100 crore creates total deposits of

Options for question 43

Show the answer and explanation
CorrectNot quiteAnswer B

Correct answer: B

Explanation

  1. What limits lending is the share banks actually keep: 20%.

  2. Multiplier = 1 ÷ 0.2 = 5, so total deposits = 100 × 5 = ₹500 crore.

Worth noting

₹1,000 crore uses the legal 10%, but banks hold 20%, so they lend less.

Concept
Actual versus legal reserves
Typical time
100 s
Your time
—
The rule this testsThe money multiplier
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Ten questions from Money Creation by Banks, at your own pace.

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Ten questions from Money Creation by Banks, at your own pace.

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