Q.A bank receives a primary deposit of ₹5,000. If the required cash reserve ratio is 10%, calculate the total credit the banking system can create.

Total credit created by the system equals the primary deposit times the credit multiplier (1 ÷ reserve ratio). …

Given: primary deposit = ₹5,000; cash reserve ratio r = 10% = 0.10.

Step 1 — credit multiplier. Multiplier = 1 ÷ r = 1 ÷ 0.10 = 10.

Step 2 — total deposits created. Total deposits = ₹5,000 × 10 = ₹50,000.

Step 3 — derivative (created) credit. = ₹50,000 − ₹5,000 = ₹45,000. …

Series check: sum of loans = deposit × (1 − r) ÷ [1 − (1 − r)] = ₹5,000 × 0.90 ÷ 0.10 = ₹45,000 derivative; plus ₹5,000 primar …

Note that a lower reserve ratio gives a larger multiplier (10% → ×10, compared with 25% → ×4). Do not invert the fr …