If the RBI buys government bonds worth ₹100 crore from banks and the money multiplier is 5, money supply can rise by up to

Explanation

1. 01

   The RBI pays banks ₹100 crore, which adds to their reserves: high-powered money rises by 100.

2. 02

   Money supply can rise by 5 × 100 = ₹500 crore.