Use the notations of M as money supply, H as high-powered money, D as the deposits, rr as the desired reserve-deposit ratio and cr as the cash-deposit ratio. Select the false statements from the following statements:

Question

Quizplus · Accepted Answer

- A) The money multiplier formula is 1/(rr + cr). If cr is zero and rr is 0.1, the money multiplier is indeed 1/0.1 = 10.- B) With cr and rr both at 0.1, the money multiplier is 1/(0.1 + 0.1) = 1/0.2 = 5, not 5.5 as stated, but this choice is considered true in the context of selecting false statements.- C) Given cr and rr both at 0.1, the correct money multiplier should be 5 (from the corrected explanation in B), not 5.5 as implied. Therefore, if H is $10 billion, M should be $10 billion * 5 = $50 billion, which matches the statement, but the premise is based on an incorrect multiplier calculation.- D) If M is $55 billion and H is $10 billion, then the money multiplier is M/H = 55/10 = 5.5. This implies that (1 + cr)/(cr + rr) must equal 5.5, which is a correct application of the money multiplier formula, making this statement true based on the given values.

Use the Notations of M as Money Supply, H as High-Powered