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What will be the amount of initial reserves if Cash Reserve Ratio (CRR) is 20 % and total credit creation is Rs 500?

Solution

Correct Option: 4

Money multiplier = 1CRR=10.20=5\frac{1}{CRR} = \frac{1}{0.20} = 5. Total credit = Initial reserves ×\times multiplier. So initial reserves = 5005=\frac{500}{5} = Rs 100.

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