Question : If the amount of initial deposits with commercial banks is INR 4000 crore and LRR is 20%, then the total deposits created will be:
Option 1: 12000
Option 2: 20000
Option 3: 800
Option 4: 6000
Correct Answer: 20000
Solution : The correct answer is (b) 20,000
The formula to calculate the total deposits created is:
Total Deposits Created = Initial Deposits / Reserve Requirement
In this case, the initial deposits are INR 4000 crore and the LRR is 20% (or 0.2).
Total Deposits Created = 4000 crore / 0.2
Total Deposits Created = 20000 crore
Therefore, the total deposits created by commercial banks would be INR 20000 crore.