Question

suppose initial deposit with bank is ₹25000 and legal reserve ratio is 20%. How much Total money will be created in economy?​

Answer 1

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 2

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 = $\frac{Total deposit }{Money Multipier}$

Step1:

Now we find Money Multiplier  

we have LRR = 0.2

so , Money Multiplier = $\frac{1}{LLR}$ = $\frac{1}{0.2}$ = 5

Now from the formula we get

Initial deposit = $\frac{Total deposit }{Money Multipier}$  

⇒ 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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