If the Reserve ratio is 20 % and the primary deposits are Rs.100 , the total lending by the banking system will be ?
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Answer:
legal reserve ratio = 20%
primary deposits = 100
credit creation (K) = 1/LRR
= 1/20%
= 100/20
= 5 times
money created by banking system to be lended = 100×5 = 500
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