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shepuryov [24]
3 years ago
7

Assume that the required reserve ratio is set at 0.125 . What is the value of the money (deposit) multiplier

Business
1 answer:
qwelly [4]3 years ago
5 0

Answer:

8

Explanation:

the money multiplier = 1 / required reserve ratio = 1 / 0.125 = 8

The money multiplier refers to the capacity of the banking system to "create" money, e.g. John deposits $1,000 dollars in bank A. Then bank A lends $875 to Frank which buys a bike from Sarah. Then Sarah deposits the $875 in bank B, which in turn borrows $765.63 to Anne. Anne pays her rent to Adam, who deposits the money in bank C and then bank C lends $669.92 to Joe, and ...

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snow_lady [41]

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