3.3.2 - Limits to Credit Creation and Money Multiplier
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Practice Questions
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What is the Cash Reserve Ratio?
💡 Hint: Think about what keeps money secure in banks.
Can a bank lend all the money it receives in deposits?
💡 Hint: Consider laws set by the central bank.
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Interactive Quizzes
Quick quizzes to reinforce your learning
What does the Cash Reserve Ratio in banking indicate?
💡 Hint: Remember its role in ensuring liquidity.
True or False: The money multiplier indicates how much banks can lend based solely on customer deposits.
💡 Hint: Think about other factors affecting lending.
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Challenge Problems
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In a fictional country, the central bank increases the CRR from 10% to 25%. Analyze the expected implications on bank lending and overall economic growth.
💡 Hint: Consider the relationship between credit supply and economic activity.
Assuming a bank has Rs 400 in deposits, and the money multiplier is 4. What is the maximum total money supply the bank can support? Calculate it and discuss how a change in CRR to 20% affects it.
💡 Hint: Remember the calculation method for both CRR and money multiplier.
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