The RBI raises the CRR from 10% to 20%. If the primary deposit in the banking system is ₹1,00,000, find the to

Exercises · Q12

Q. The RBI raises the CRR from 10% to 20%. If the primary deposit in the banking system is ₹1,00,000, find the total credit-creating capacity of the banking system

(i) before and

(ii) after the change, and comment on the effect.

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Before the change (CRR = 10% = 0.10):

Credit multiplier $k=\dfrac{1}{0.10}=10$

Total credit created $=1{,}00{,}000\times10=₹10{,}00{,}000$

After the change (CRR = 20% = 0.20):

Credit multiplier $k=\dfrac{1}{0.20}=5$

Total credit created $=1{,}00{,}000\times5=₹5{,}00{,}000$

Verification (geometric series, after the change): $\dfrac{1{,}00{,}000}{1-0.80}=\dfrac{1{,}00{,}000}{0.20}=₹5{,}00{,}000$ — matches the direct-formula answer. …

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Q.The RBI raises the CRR from 10% to 20%. If the primary deposit in the banking system is ₹1,00,000, find the total credit-creating capacity of the banking system

Concept understanding — Quantitative Tools of Monetary Policy

Q.The RBI raises the CRR from 10% to 20%. If the primary deposit in the banking system is ₹1,00,000, find the total credit-creating capacity of the banking system

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