The following balances are taken from balance sheet of the RBI:
Particulars Rs. cr.
Credit to Government 12,000
Credit to Banks 8,000
Government Deposits 700
Other non-monetary liabilities 1,000
Net worth 4,000
Credit to commercial sector 2,000
Net foreign exchange assets 20,000
Other assets 600
Deposits of banks 9000
Other Deposits 200
The currency/deposit ratio has been ascertained as 0.302. Reserve ratio imposed by the central bank is 7%.
The amount of Government money is Rs.100 cr.
Required:
a. Compute the money supply in the economy.
b. If RBI pays a dividend of Rs.500 crore out of reverses to the government, what would be the impact on the money supply? Explain.
c. If RBI would like to neutralize the impact of (b) above on the money supply by changing the reserve ratio, what should be the new reserve ratio?
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Mba Hr case study 