Question

there is an inverse relationship between legal reserve ratio and money multiplier. discuss with the help of numerical examples​

Answer 1

Answer:

money multiplier=1/ LRR

Explanation:

LRR is legal reserve ratio which every commercial bank have to keep with them. suppose LRR is 20% n suppose 1000rs is deposited in bank so out of this bank can give 800rs as a loan but have to keep rs 200 as LRR. suppose bank LRR is 10% means bank van give loan of 900 out of 1000 but have to keep 100 with them

Moneymutiplier=1/LRR

ist condition =1/20%=5 times

2nd condition 1/10%=10times

means more is LRR less will be money multiplier n less LRR means more money multiplier