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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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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