Suppose, in a hypothetical economy, the cash reserve ratio is 20% and initial deposits are Rs.100. The value of money which a bank can use to give as a loan in the first round would be

Option 1 -> When CRR is 20%, the bank keeps Rs. 20 as reserve and can lend Rs. 80.

Option 2 -> This would mean the bank lends the entire deposit, ignoring the CRR requirement.

Option 3 -> This exceeds the initial deposit amount, which is impossible in the first round.

Option 4 -> This would correspond to a CRR of 10%, not 20%.

Hence, Option 1: 80 -> The Cash Reserve Ratio (CRR) is the percentage of deposits that banks must keep as reserves with the central bank. With CRR at 20% and initial deposits of Rs. 100, the bank must keep Rs. 20 (20% of 100) as mandatory reserves. The remaining amount = 100 - 20 = Rs. 80, which is the amount available for lending in the first round. This Rs. 80 represents the loanable funds that can be used to create credit in the economy through the money multiplier process. -> correct