There is an inverse relationship between legal reserve ratio (LRR) and value of money multiplier
True or False with Reasons
There is an inverse relationship between legal reserve ratio (LRR) and value of money multiplier.
Anurag Pathak Changed status to publish December 24, 2023
True,
Money Multiplier is inversely related to LRR as
Money Multiplier = 1/LRR
Additional Information:-
Money multiplier is the number by which total deposits can increase due to a given change in deposits.
It is inversely related to the legal reserve ratio.
In other words, Money Multiplier is the process by which the commercial bank creates credit, based upon the reserve ratio and initial deposits.
It is calculated as:
Money Multiplier = 1/LRR
For example, LRR is 20%
Money Multiplier = 1/20% = 5 times
Anurag Pathak Changed status to publish December 24, 2023
