Question

Assuming individuals hold no currency, calculate the simple money multiplier for each of the following reserve ratios: a. 4 percentb. 12 percentc. 18 percentd. 26 percente. 30 percent:

Answer 1

Answer:

a. 25 b. 7 c. 6 d. 4. e. 3

Explanation:

Money Multiplier = 1/Reserve ratio

A. At 4% reserve ratio

Money Multiplier = 1/0.04

Money Multiplier = 25

B. At 12% reserve ratio

Money Multiplier = 1/0.12

Money Multiplier = 6.67

Money Multiplier = 7

C. At 18% reserve ratio

Money Multiplier = 1/0.18

Money Multiplier = 5.56

Money Multiplier = 6

D. At 26% reserve ratio

Money Multiplier = 1/0.26

Money Multiplier = 3.85

Money Multiplier = 4

E. At 30% reserve ratio

Money Multiplier = 1/0.3

Money Multiplier = 3.33

Money Multiplier = 3