Consider the following data about the economy: currency outstanding (C)= $2 trillion, total deposits (D)= $1 trillion, total reserves (R)= $60 billion, and the required reserve ratio (RR ratio)= 5%. What is the money multiplier for this economy?

Question

Quizplus · Accepted Answer

The money multiplier is calculated as 1 / (RR ratio + ER ratio), where ER ratio is the excess reserves ratio. Here, RR ratio is 0.05. Total reserves (R) are $60 billion, and required reserves are 5% of deposits, which is $50 billion. Excess reserves are $10 billion, so ER ratio is $10 billion / $1 trillion = 0.01. Thus, the money multiplier is 1 / (0.05 + 0.01) = 1.46.

Consider the Following Data About the Economy: Currency Outstanding (C)=