In a hypothetical economy, Mr. Neeraj has deposited ₹ 100 in the bank. if it is assumed that there is no other currency circulation in the economy
In a hypothetical economy, Mr. Neeraj has deposited ₹ 100 in the bank. if it is assumed that there is no other currency circulation in the economy, then the total money supply in the economy will be ____. (Fill up the blank with correct alternative)
(a) Zero
(b) ₹ 100
(c) Not defined
(d) ₹ 120
Anurag Pathak Changed status to publish January 4, 2024
Ans – (b)
Explanation:-
In the absence of the circulation of any other currency in the economy. It means bank money such as demand deposits also does not exist.
In this case, LRR also does not exist.
Thus as per the question:
Money supply = Initial deposits × 1/LRR
As LRR does not exist,
Money supply = Initial Deposits
Money supply = ₹ 100
Anurag Pathak Changed status to publish January 4, 2024
