If the required reserve ratio is 10 percent,currency in circulation is $400 billion,checkable deposits are $800 billion,and excess reserves total $0.8 billion,then the M1 money multiplier is

Question

Quizplus · Accepted Answer

The M1 money multiplier is calculated as 1/(required reserve ratio + currency in circulation/checkable deposits). In this case, the required reserve ratio is 10%, currency in circulation is $400 billion, and checkable deposits are $800 billion. So, the M1 money multiplier is 1/(0.10 + 400/800) = 1/(0.10 + 0.50) = 1/0.60 = 2.5.

If the Required Reserve Ratio Is 10 Percent,currency in Circulation