Skip to content

Lesson eLearning

RBI has fixed the Cash Reserve Ratio at 4% and the Statutory Liquidity Ratio at 5%. If the public holds 30% of the total deposits in cash, what is the money multiplier?

medium 2 marks Class 12 · Economics · Money and Banking

Answer

2.564

The correct answer is 2.564 — Round to three decimals: $m = 2.564$ .

Step-by-step solution

The money multiplier $m$ is the reciprocal of the total reserve requirement ratio.
Compute the total reserve requirement ratio: $C R R + S L R + C a s h R a t i o = 0.04 + 0.05 + 0.30 = 0.39$ .
Take the reciprocal: $m = \frac{1}{0.39} = 2.56410256$ .
Round to three decimals: $m = 2.564$ .

Common mistake: Ignoring the cash holding ratio in the denominator

Concept tested: Money multiplier calculation

Published 16 October 2026 · How this solution was prepared and checked

← All Money and Banking questions