If the required reserve ratio is 5 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

M1 = currency in circulation + checkable deposits
M1 = $400 billion + $800 billion = $1.2 trillion

Required reserves = 0.05 x $800 billion = $40 billion

Total reserves = required reserves + excess reserves = $40.8 billion

M1 money multiplier = M1 / total reserves
M1 money multiplier = $1.2 trillion / $40.8 billion = 2.72

Therefore, the answer is (B) 2.72.

If the Required Reserve Ratio Is 5 Percent,currency in Circulation