Assuming initially that r = 10 percent and c = 40 percent, a decrease in r to 5 percent causes ________.

Question

Quizplus · Accepted Answer

The money multiplier is calculated as 1/reserve ratio, so a decrease in the reserve ratio (r) from 10% to 5% causes the money multiplier to increase. Using the formula, initially the money multiplier is 1/0.4 = 2.5. After the decrease in r to 5%, the new money multiplier is 1/0.05 = 20. Therefore, the money multiplier increases from 2.5 to 20/6.4 ≈ 3.11.

Assuming Initially That R = 10 Percent and C =