If the required reserve ratio is 15 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 + currency ratio) / (required reserve ratio + currency ratio + excess reserve ratio). Here, the currency ratio is 400/800 = 0.5, the required reserve ratio is 0.15, and the excess reserve ratio is 0.8/800 = 0.001. Thus, the multiplier is (1 + 0.5) / (0.15 + 0.5 + 0.001) = 2.3.

If the Required Reserve Ratio Is 15 Percent,currency in Circulation