Commercial banks in a country hold $50 million in cash but have created $600 million deposits.
The central bank raises the cash deposit ratio to 10%.
What will be the outcome?
A Commercial banks will decrease deposits to $500 million.
B Commercial banks will deposit $5 million in the central bank.
C Commercial banks will deposit $10 million in the central bank.
D Commercial banks will increase money in circulation by $5 million.

Q: What topic does this question test?

This question tests Money and Banking in A-Level Economics (syllabus code 9708). It is worth 1 mark.

Q: Which exam paper is this question from?

This question appeared in the Cambridge A-Level Economics Oct/Nov 2019 examination, Paper 3 Variant 3 (9708_w19_qp_33.pdf).

Question

Commercial banks in a country hold $50 million in cash but have created $600 million deposits.
The central bank raises the cash deposit ratio to 10%.
What will be the outcome?
A Commercial banks will decrease deposits to $500 million.
B Commercial banks will deposit $5 million in the central bank.
C Commercial banks will deposit $10 million in the central bank.
D Commercial banks will increase money in circulation by $5 million.

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