If all banks hold a 100% reserve ratio, what happens to the money supply when a person deposits Rs 1,000 in a bank?

Show Answers

The money supply grows by an amount greater than Rs 1,000The money supply rises by an amount less than Rs 1,000The money supply declines by an amount less than Rs 1,000The money supply decreases by an amount greater than Rs 1,000The money supply remains unchanged

Explanation

When banks maintain a full 100% reserve ratio, depositing currency into a bank does not lead to any change in the overall money supply. This is because banks do not lend out deposits, so the total money in circulation stays the same.