Question:
If the Required Reserve Ratio is 10%, and a bank receives a new deposit of Rs. 100,000, the maximum amount of new loans this single bank can create is:
(1) Rs. 100,000
(2) Rs. 10,000
(3) Rs. 90,000
(4) Rs. 1,000,000
(5) Rs. 50,000
Correct Answer:
(3)
Answer Explanation:
The bank must keep 10% (Rs. 10,000) as reserves. It can lend out the remaining excess reserves, which is Rs. 90,000. (Note: The banking system could create more, but a single bank can only lend its excess reserves).
Topic: Money and Banking Year: 2024
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