Suppose Imtiaz moves his Rs1,000 demand deposit from Bank A to Bank B. If both banks operate with a reserve ratio of 10 percent What is the potential change in money supply as a result of Gerard's action ?
Correct answer: D. Rs 0
- A. Rs 10,00
- B. Rs 1,000
- C. Rs 9,000
- D. Rs 0
Explanation
Moving an existing Rs1,000 deposit from one bank to another changes the location of the deposit, not the total amount of deposits in the banking system. Therefore, the immediate change in total money supply is zero.
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