High Order Thinking Skills Questions - Money and Banking Notes | Study Economics Class 12 - Commerce

HOTS

Q.1 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.

Q.2 If total deposits created by commercial banks are Rs.12000, LRR is 25% calculate initial deposit.

Ans:  Money multiplier = 1/LRR = 1/.25 = 4

          Initial deposit = Total deposit / money multiplier = 12000/4  = 3000

Q.3 Calculate LRR, if initial deposit of Rs. 200 cores lead to creation of total deposits of Rs. 1600 cores.

Ans:  Money multiplier = Total deposits/Initial deposits = 1600/200=8

           Money multiplier = 1/LRR = 8=1/LRR.

           LRR = 1.25 or 12.5