What's up everyone, welcome back to the channel. This is day 9 of our G&G 2.0 series. And I am really enjoying the way all of you are putting up your regular attendance. The way all the students are discussing among themselves in the comments. So this feels so good that I am contributing to an important stage of your life. This is the way we have to keep studying. Small contributions bring great success. So we have to work hard like this. We are almost halfway. It's a 21 day series. We have come to 9 days. Tomorrow will be 10 days. So keep studying like this. Where you have done this much, just 50% more. And then see how drastic change comes inside you. Come on, let's quickly finish today's day. And then we will move ahead tomorrow. Let's begin. Intro Let's start. In banking, we had a small topic left yesterday. That is money multiplier. So what is the concept of money multiplier? See, it is in the name only. Multiplying of money. So this concept says that when you deposit money in a commercial bank. So that commercial bank multiplies that money and generates many folds of money. That is, if you have deposited 1000. So how will it make 1000, 5000, 10,000, 20,000? They call that process money multiplier. So what is money multiplier? It is the process of creation of credit by commercial banks with the help of initial deposits. Initial deposits mean what you have deposited. Made by public and LRR. See, in multiplier 1 upon LRR. This is its formula. Which will help you to see how many percent or how many times generation will happen. From initial deposit to final deposit. No problem, I will explain everything now. Once you write this definition. Now kids, it is written. From this process, commercial banks create credit. Which is in far axis of the primary deposits. That is, the amount of money you had deposited initially. Commercial banks create many times more money than that. Now see, it is written. To understand this process, we have to assume two things. No. 1 The entire banking system is one unit. And we call it banks. The entire banking system is one unit. It is called a bank. No. 2 All receipts and payments are routed through the bank. What does it mean to be routed through the bank? What does it mean to be routed through the bank? That everything happens through the bank, not through cash. Okay kids? After this, see. Now one thing is written. That all the deposits come to the bank. I told you, we learned this yesterday. All the deposits come to the bank. The bank maintains a reserve and distributes the rest of the loans. Right? Now let's start understanding the process. You have to do one thing. You have to understand a table. Through this, the whole process will be understood. Okay? See, we believe that there were deposits here. After the deposits, how many loans did the bank give? And how much reserve did it maintain? We call it LRR. Okay? Now you can assume anything in LRR. This is your assumption. I am assuming 20%. Okay? Now I had written a formula of multiplier for you. See behind. The formula of money multiplier is 1 upon LRR. This means 1 upon 0.20. You can write 20% as 0.20. 20 upon 100. 0.20. That means 5 times. This means kids. If you take LRR as 20%. Then all the money you deposit in the bank. The bank will make it 5 times. Will make it 5 times. If this LRR was 10%. Then how much would the bank multiply? 1 upon 0.10. Then the bank would have made it 10 times. So how much credit will the bank create? It depends on LRR. Keep this in mind. Okay? What will it depend on? On LRR. Now see. You should understand one more thing. As much as LRR was 20%. So 5 times was created. This became 10%. So 10 times was created. That means the LRR will be less. The more money will be multiplied. Because reserve will become less. Money will go more in the economy. So keep in mind that Multiplier and LRR have inverse relation. We can also see it in the formula from here. Through 1 upon LRR. Right? Now understand the process. Assume that you made an initial deposit in the bank. Of 1000 rupees. You deposited 1000 rupees in the bank. If you deposit 1000 rupees in the bank. Then you will see that 20% of it makes reserve to the bank. 20% of 1000 will make 200 rupees reserve to the bank. And will distribute 800 rupees in the form of loan to the public. Will give the loan to the public. That means 1000 rupees came to the bank. Someone deposited. The bank will make the reserve out of it. Rest will distribute the loan. Right? So the bank distributed the loan of 800 rupees. Now the one to whom the child gave the loan. What will the bank do with this loan? He will spend from this loan. Because he has taken the loan. He will need it. He will have to spend somewhere. Now when he will spend. All transactions are from the bank. Is it from the bank that 800 rupees came to the bank again? Brother, whoever will spend. All transactions are from the bank. Suppose I took a loan. Why did you take? For studying. I paid my college fees. So the college will also go to the bank. Because everything happens from the bank. So 800 rupees went to the bank again. What will the bank do with this 800? Then 20% reserve will be made. 160 How much will it distribute? 640 See Will give a loan of 640. This 640 which will be spent. Will come to the bank again. 640 then 20%. Will make a reserve of 128. How much will it distribute? 512 This 512 will come to the bank again. And this circle will keep running like this. The whole cycle will keep running like this. Will keep running. Multiple rounds will keep happening. Will keep happening. And by running such rounds. At one point of time. What will happen? All the deposits that were made in the beginning. That much total reserve will be made. See 200 and 160 360 And 28 488 By doing this till the last round. If you add Then you will get this. How much was the initial deposit. That much bank has made reserves. Now How many reserves have been made? So this will also have a total. 1000 and 800 1800 1800 and 640 2440 2440 and 512 29 52 By doing this sum you will see. That here the total has become 5000 rupees. How many have been made here? 5000 Now 20% of 5000 is 1000. So how many loans will be distributed? 4000 Now you are able to see from here. That the initial deposit of the bank. The initial deposit of the bank was 1000. And the total deposit that was made was 5000. This means Total deposit Divided by initial deposit When we do Then we get the value of money multiplier. See how much value of money multiplier has come? Has the value come 5 times? And we already knew that it will come 5 times. How sir? Because we had already applied the formula here. 1 upon LRR If I take this much LRR, it will be 5 times. If LRR kids would have taken 10% Then here 100 would have been made in 1000. 900 would have increased. 900 would have come here. Then the reserve of 90 would have increased. 810 would have increased. Then 810 would have come here. So if we see like this Then here 1000 would have become 10,000. Why? Because there was only 10 times to be created. So the process of multiplier works like this. That the bank The money taken from you By distributing further Generates multiple amounts. Creates multiple credits. This is what we call money multiplier. Sorted Let's see See it is written The deposit held by banks are used for giving loans. However, banks cannot use the whole deposit for lending. It is legally compulsory for the bank To keep a certain minimum fraction of deposits as reserves. Which we call LRR. Now the whole work that I did I wrote it in a paragraph. You will have to learn this. Initial deposit was 1000. LRR was 20%. This means that banks will keep reserves of 200 rupees. And will give loans of 800 rupees. Then if borrowers take out 800 rupees This money will come to the bank in the form of a deposit of 800 rupees. Because everything happens through the bank. So this will increase the bank's deposit from 800 to the second round. So first it was 1000 then it increased to 800. It is written ahead Such a bank will again make 20% reserve. Will give 640 loans. Which will come to the bank again. So this will keep running every time. And how long will this process run? Take a screenshot of this first. How long will this process run? It will run until Total cash reserves are not equal to the initial deposit. See 1000 will be equal to 1000. Right And we are able to observe from the table That the initial deposits 5 times the total deposits. So we also call this money multiplier. Right This was kids With us What sir This was kids With us Multiplier And with this Our banking topic Happens Complete Complete End Now as soon as you have completed the topic of banking So you just have to take a 2 minute break. And after 2 minutes You have one more video of ICO Indian ICO Unit 1 You have to see that too now. Alright Thank you so much guys for joining in. I am going to see you all in just 2 minutes. Meet in Indian ICO And let's start that video. Thank you so much. Music