CBSE 2021 Class 12 Economics Term 1 Paper

Question : 36

Total: 60

Suppose money created by the banking system is 1,000 and the primary deposits is ₹250. The respective values of deposit multiplier and reserve ratio would be ______ and ______.
(Choose the correct alternative)

4,25%
8,12.5%
4,12.5%
5,20%

Solution:

(a) 4,25%
Explanation:
Money created =1000
Primary Deposit =250
Money creation = Initial deposit × Money ∕ deposit multiplier
1000‌=250×‌ Money ‌∕ Deposit Multiplier
‌

1000

250

‌=‌ Deposit multiplier ‌
4 = Deposit multiplier
‌ Money ‌∕‌ Deposit multiplier ‌=‌

‌ LRR ‌

4‌=‌

LRR

LRR‌=‌

4×LRR‌=1
LRR‌=‌

=0.25×100=25%

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