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If the reserve ratio is 10% and the initial deposit with the commercial banks are Rs. 450 cr, the total money creation by the banking system will be :

Solution

Correct Option: 4

Money multiplier =1Reserve Ratio=10.10=10= \frac{1}{\text{Reserve Ratio}} = \frac{1}{0.10} = 10.

Total money creation =Initial Deposit×Multiplier=450×10=4500= \text{Initial Deposit} \times \text{Multiplier} = 450 \times 10 = 4500 crore.

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