Credit multiplier is equal to ___________. • Total Credit Creation =
Right Answer is: A
• Total Credit Creation = Original Deposit * Credit Multiplier Coefficient
• Credit multiplier coefficient= 1 / CRR, where CRR = Cash Reserve Ratio
• Cash Reserve Ratio is a specific part of total deposits of a Commercial Bank mandated by RBI to hold as a reserve in the form of cash or cash equivalent which is stored in the bank’s vault or is sent to the RBI.
• Lower the CRR, the higher will be the credit creation.
• Higher the CRR, lesser will be the credit creation.