If total reserves for a bank are $12,000,excess reserves are $2,000,and demand deposits are $100,000,the money multiplier must be

Question

Quizplus · Accepted Answer

The reserve requirement ratio for this question is calculated using the formula:
Reserve Requirement Ratio = Total Reserves/Demand Deposits
Reserve Requirement Ratio = $12,000/$100,000 = 0.12
The money multiplier can then be calculated as the reciprocal of the reserve requirement ratio:
Money Multiplier = 1/Reserve Requirement Ratio = 1/0.12 = 8.33
However, we need to take into account the excess reserves in the bank which are not being used to make loans and create more deposits. Therefore, the actual money multiplier would be lower than 8.33. 
Money Multiplier = 1/Required Reserve Ratio + Excess Reserves/ Demand Deposits = 1/0.12 + $2,000/$100,000 = 8.33 + 0.02 = 8.35
Rounded to the nearest whole number, the money multiplier is 10. Therefore, the best choice is C.

If Total Reserves for a Bank Are $12,000,excess Reserves Are