If legal reserve ratio is 10% and new deposit Rs.2000. Explain the process of money
creation by the commercial bank. If new deposit decrease from Rs 2000 to Rs 1000 what will the impact on money creation.
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Calculate the value money multiplier and the total deposit created if initial deposit is of Rs. 500 crores and LRR is 10%. Ans: Money multiplier = 1/LRR which is equal to 1/0.1=10 Initial deposit Rs. 500 crores Total deposit = Initial deposit x money multiplier = 500 x 10 = 5000 crores.
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