Could someone please answer this who actually knows how to do it please??!
2 answers:
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Answer:
Option B
Step-by-step explanation:
Given that the required reserve ratio is 20 percent.
Since banks are conservative they choose not to loan all their excess reserves
i.e. only 20% of deposits is kept as reserve and 80% lent.
This 80% will again be deposited in a bank and 80% of 80 i.e.64% would be lent. Thus this will form a geometric progression infinitely as
deposits with common ratio 0.8<1
Hence infinite sum =
So deposit multiplier is B) equal to 5