Question

The money multiplier equalsa.1/(1 R), where R represents the quantity of reserves in the economy. b.1/(1 R), where R represents the reserve ratio for all banks in the economy. c.1/R, where R represents the quantity of reserves in the economy. d.1/R, where R represents the reserve ratio for all banks in the econom

Answer 1

Answer:

b. 1/R, where R represents the reserve ratio for all banks in the economy

Explanation:

The reserve ratio can be define as the part of reservable liabilities that commercial banks must hold onto or have, rather than investing or borrowing out. This can be said to be a necessary requirement determined by every central bank of a particular country, which in the United States is the Federal Reserve. It is also known as the cash reserve ratio.

Commercial banks in the U.S are required to hold reserves against their total reservable liabilities (deposits) which cannot be borrowed out by the bank. Example of reservable liabilities include non personal time deposits, net transaction accounts and Eurocurrency liabilities.