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Q37. CREDIT CREATION CALCULATION

Accounting

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Answer

5\textbf{5}

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Q37. CREDIT CREATION CALCULATION

Given:

  • Liquid Assets Ratio (LGS ratio) = 20% = 0.20
  • New deposit entering the banking system = K40 million

  1. Calculate the Bank Credit Multiplier.

    The Bank Credit Multiplier is the reciprocal of the LGS ratio.

    Bank Credit Multiplier=1LGS ratio\text{Bank Credit Multiplier} = \frac{1}{\text{LGS ratio}} Bank Credit Multiplier=10.20=5\text{Bank Credit Multiplier} = \frac{1}{0.20} = 5

    The Bank Credit Multiplier is 5\boxed{\textbf{5}}.

  2. Calculate the

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