Question

If the total deposits created by commercial banks is $12,000$ crores and legal reserve requirements is $25\%$, then calculate the amount of initial deposits.

Answer 1

Given, Legal Reserve Requirements (LRR) is $25$ or $0.25$
Money Multiplier $=\frac{1}{LRR}=\frac{1}{0.25}=4$
If total deposits created is of $Rs.12,000$ crates, then:
Initial Deposits $=\frac{TotalDeposits}{MoneyMultiplier}=\frac{12,000}{4}=Rs.3,000$ crores.