Suppose in an economy, the legal Required ratio fixed by the Central Bank is 20% and the value of initial deposits is 1000 crores. What is the value of loans extended by the Commercial Banks ? Option 1: 5,000 crores Option 2: 4,000 crores Option 3: 2,000 crores Option 4: 20,000 crores

Answer: 4,000 crores. Solution: Money multiplier = 1/LRR = 1/0.20 = 5. Total deposits = initial deposits x multiplier = 1000 x 5 = 5000 crores. Loans extended = Total deposits minus initial deposits = 5000 - 1000 = 4000 crores.

Macro

Money & Banking

Medium

Suppose in an economy, the legal Required ratio fixed by the Central Bank is 20% and the value of initial deposits is $\overline{\mathbf{\tau}}$ 1000 crores. What is the value of loans extended by the Commercial Banks ?

$\overline{\mathbf{\tau}}$ 5,000 crores

$\overline{\mathbf{\tau}}$ 4,000 crores

$\overline{\mathbf{\tau}}$ 2,000 crores

$\overline{\mathbf{\tau}}$ 20,000 crores

✅ Correct Option: 2

Money multiplier = $\frac{1}{LRR} = \frac{1}{0.20} = 5$ . Total deposits = initial deposits $\times$ multiplier = $1000 \times 5 = 5000$ crores. Loans extended = Total deposits minus initial deposits = $5000 - 1000 = 4000$ crores.

2025: 15 May Shift 1

Which of the following is the correct pair of narrow money?

2026: 11 May Shift 2

From the following, choose the correct options as the functions of the Reserve Bank of India.

A. Regulates the reserve requirements of commercial banks.

B. Sterilizes the money supply in the economy against external shocks.

C. Maintains the deposits of the public.

D. Regulates money supply by controlling the stock of high-powered money.

Choose the correct answer from the options given below:

2025: 14 May Shift 1

Which system requires double coincidence of wants?

2022: 30 Aug Shift 2

_______ are deposits which have a fixed period of maturity.

2022: 10 Aug Shift 2

Identify the quantitative tools used by RBI to control money supply.

(A) Moral Suasion

(B) Bank Rate

(D) Open Market Operations

(E) Margin requirement

Choose the correct answer from the options given below :

2026: 19 May Shift 2

Arrange the following alternative measures of money supply in decreasing order of liquidity.

Where CU= Currency and DD = Demand Deposit

A. CU + DD

B. CU + DD + Net time deposits of commercial banks

C. CU + DD + Savings deposits with Post Office savings banks

D. CU +DD + Net time deposits of commercial banks +Total deposits with Post Office savings organizations (excluding NSC)

Choose the correct sequence from the options given below:

Suppose in an economy, the legal Required ratio fixed by the Central Bank is 20% and the value of initial deposits is τ‾\overline{\mathbf{\tau}}τ 1000 crores. What is the value of loans extended by the Commercial Banks ?

Solution

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CUET Economics Past Year Questions (Topic-Wise)

Suppose in an economy, the legal Required ratio fixed by the Central Bank is 20% and the value of initial deposits is $\overline{\mathbf{\tau}}$ 1000 crores. What is the value of loans extended by the Commercial Banks ?