suppose initial deposit with bank is ₹25000 and legal reserve ratio is 20%. How much Total money will be created in economy?
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suppose initial deposit with bank is ₹25000 and legal reserve ratio is 20%. How much Total money will be created in economy?
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Answer:
k = 1/LRR
= 1/20%
= 100/20
= 5 TIMES
money created in an economy = 25,000 × 5 = 1,25,000
loanable amount = 25,000 - 5000 = 20,000
of which 5000 is kept as legal reserve
Answer:
Rs 125,000 will be created .
Explanation:
Given , Initial deposit = Rs 25000
and legal reserve ration (LRR) = 20 % or 0.2
As we know , Initial deposit = [tex]\frac{Total deposit }{Money Multipier}[/tex]
Step1:
Now we find Money Multiplier
we have LRR = 0.2
so , Money Multiplier = [tex]\frac{1}{LLR}[/tex] = [tex]\frac{1}{0.2}[/tex] = 5
Now from the formula we get
Initial deposit = [tex]\frac{Total deposit }{Money Multipier}[/tex]
⇒ Total deposit = Initial deposit × Money Multiplier
= 25000 × 5 = 125,000
Final answer :
Hence , Rs 125,000 is the total money will be created .
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