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Question
Suppose the central bank has set the reserve requirement at 6%. The commercial bank has total deposits of 100 crore rupees and total loans of 50 crore rupees. How much money can be put into circulation through lending?
Suppose the central bank has set the reserve requirement at 6%. The commercial bank has total deposits of 100 crore rupees and total loans of 50 crore rupees. How much money can be put into circulation through lending?
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Solution
The correct option is D 94 crore rupees
The amount of reserve is calculated on the amount of deposits.
Total amount of reserves
= 6% of 100 crores
= 6 crores
Money that can be put into circulation through lending
= Total deposits – Total reserves
= 100 crores – 6 crores
= 94 crores
The amount of reserve is calculated on the amount of deposits.
Total amount of reserves
= 6% of 100 crores
= 6 crores
Money that can be put into circulation through lending
= Total deposits – Total reserves
= 100 crores – 6 crores
= 94 crores
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