Statement 1: Money multiplier is directly related to legal reserve ratio
Statement 1: Money multiplier is directly related to legal reserve ratio.
Statement 2: Through money multiplier, commercial banks create credit, based upon the reserve ratio and initial deposits.
Alternatives:
(a) Both the Statements are true
(b) Both the Statements are false
(c) Statement 1 is true and Statement 2 is false
(d) Statement 2 is true and Statement 1 is false
Anurag Pathak Changed status to publish January 6, 2024
Ans – (d)
Explanation:-
Statement 1 is false, Money Multiplier is inversely related to legal reserve ratio.
Statement 2 is correct commercial banks create credit based upon the initial deposit and legal reserve ratio.
Money multiplier = 1/LRR
Credit Creation = Initial Deposits Money × Multiplier
Anurag Pathak Changed status to publish January 6, 2024
