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