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If the Reserve Bank of India sets the cash reserve ratio (CRR) at 4% and the statutory liquidity ratio (SLR) at 6%, what is the money multiplier?

medium MCQ 2 marks Class 12 · Economics · Money and Banking
  1. 10
  2. 12.5
  3. 13.33
  4. 14
Answer
10

The correct answer is 10 — Hence the money multiplier is 10.

Step-by-step solution

  1. The money multiplier is calculated as the reciprocal of the sum of the CRR and SLR expressed as a fraction.
  2. CRR = 4% = 0.04 and SLR = 6% = 0.06.
  3. Sum = 0.04 + 0.06 = 0.10.
  4. Money multiplier = 1 ÷ 0.10 = 10.
  5. Hence the money multiplier is 10.
Common mistake: Forgetting to include SLR in the denominator

Concept tested: Calculation of money multiplier

Published · How this solution was prepared and checked

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