Macro

Money & Banking

Medium

Given a cash reserve ratio of 20 percent, reserves of Rs 100 create deposits of ___________?

Rs. 5

Rs. 100

Rs. 500

Rs. 20

✅ Correct Option: 3

Option 1: Rs. 5 -> This would result from incorrectly dividing reserves by CRR, which is not the correct approach.

Option 2: Rs. 100 -> This assumes no money multiplication effect, ignoring the fractional reserve banking mechanism.

Option 3: Rs. 500 -> Using money multiplier formula (1/CRR = 1/0.20 = 5), total deposits = 100 × 5 = Rs. 500.

Option 4: Rs. 20 -> This represents 20% of reserves (the reserve requirement itself), not total deposits created.

Hence, Option 3: Rs. 500 -> With a Cash Reserve Ratio of 20% (0.20), the money multiplier is calculated as 1/CRR = 1/0.20 = 5. When banks have reserves of Rs. 100, they can create total deposits equal to Reserves × Money Multiplier = 100 × 5 = Rs. 500. This demonstrates the credit creation capacity of banks under fractional reserve banking, where banks only need to hold a fraction (20%) of deposits as reserves while lending out the rest. -> correct

2022: 10 Aug Shift 2

Identify the correct statements regarding money supply

(A) Money supply is a stock concept.

(B) Money supply is a flow concept.

(D) Money supply is the currency held with banks.

(E) Money supply is the concept of real flow.

Choose the correct answer from the options given below :

2025: 22 May Shift 1

The RBI can influence money supply by changing the rate at which it gives long-term loans to commercial banks. This rate is called the...

2025: 14 May Shift 1

Reserve Bank of India (RBI) is also known as by which other name.

2023: 30 May Shift 1

When in the Economic, Bank rate decrease, Arrange the following statements relating to change in bank rate in the sequencing order :

(A) Loans taken by commercial bank become cheaper

(B) Increases money supply

(D) Reserves held by commercial banks increases

Choose the correct answer from the options given below :

2022: 19 July Shift 2

Identify the incorrect statement.

(A) Money is what money does

(B) There are many assets which carry functions of money

(D) The first and foremost role of money is that it acts as medium of exchange

(E) Money acts only as convenient unit of account

Choose the correct answer from the options given below :

2026: 21 May Shift 1

Match List-I with List-II

List-I	List-II
(A) Lender of last resort	(I) 1/Cash reserve ratio
(B) Money multiplier	(II) Buying and selling government securities
(C) Open market operations	(III) RBI
(D) $M^d_t$ = kPY	(IV) Transaction demand for money is positively related to the real income of an economy.

Choose the correct answer from the options given below:

Given a cash reserve ratio of 20 percent, reserves of Rs 100 create deposits of ___________?

Solution

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