ECONOMICS
MONEY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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fresh deposits with bank become zero
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legal reserve ratio becomes zero
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money multiplier becomes zero
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total reserves equal initial deposits
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Detailed explanation-1: -This process continues, the deposits go on increasing. The deposit creation comes to an end when total cash reserves with the bank are equal to the initial deposit of Rs. 100.
Detailed explanation-2: -The process of credit creation by commercial banks comes to an end when total money reserves become equals to initial deposit.
Detailed explanation-3: -The process of deposit creation entails how commercial bank systems accept new deposits to increase the economy’s money supply. The deposits come from the general public, and some of them remain with the banks to fund daily activities, while some portion is allocated to advance loans to the public.
Detailed explanation-4: -This is because a higher reserve ratio means that commercial banks have less money available for lending, while a lower reserve ratio means that they have more money available for lending. Therefore, we can conclude that the reserve ratio and credit creation are inversely related.
Detailed explanation-5: -Total deposits are the over all money including the primary deposits created by the commercial banks as a process of credit creation through its primary deposit. Total deposit= (1/ cash reserve ratio) x primary deposit.