| Directions : Read the following statements: |
| Assertion (A) and Reason (R). Choose one of the correct alternative. |
| Assertion (A):Higher the legal reserve ratio, lower will be the credit creation and lower the legal reserve ratio, higher will be the credit creation. |
| Reason (R):Money/deposit multiplier is a multiple by which total deposits increase due to primary deposits. If refers to the amount by which the initial deposits multiply into a large amount of final deposits. |
| Money Multiplier \[=\frac{1}{LRR/RDR}\](LRR = legal Reserve Ratio, RDR = Reserve Deposit Ratio) |
A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
B) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation of Assertion (A).
C) Assertion (A) is true but Reason (R) is false.
D) Assertion (A) is false but Reason (R) is true.
Correct Answer: A
Solution :
[a] Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
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