Suppose all banks maintain a 100 percent reserve ratio. If an individual deposits Rs 1,000 of currency in a bank ?
Correct answer: E. The money supply is unaffected
- A. the money supply increases by more than Rs 1,000
- B. the money supply increase by less than Rs 1,000
- C. the money supply decrease by less than Rs 1,000
- D. the money supply decrease by more than Rs 1,000
- E. The money supply is unaffected
Explanation
Depositing Rs 1,000 changes the form of money from currency held by the public to a bank deposit. With a 100 percent reserve ratio, no additional deposits are created, so the total money supply is unchanged.
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