The money multiplier ₂ could be greater than the inverse of the reserve requirement.

Question

Quizplus · Accepted Answer

The money multiplier, which is often represented as 1/reserve requirement, can indeed be greater than the inverse of the reserve requirement because it also factors in the behaviors of banks in lending out their excess reserves and the preferences of the public in holding cash versus deposits, both of which can amplify the initial increase in bank reserves into a larger increase in the money supply.

The Money Multiplier 2 Could Be Greater Than the Inverse

The Money Multiplier ₂ Could Be Greater Than the Inverse