If the desired reserve ratio is one-third, currency in circulation is $300 billion, and chequable deposits are $900 billion, then the money multiplier is approximately ________.

Question

Quizplus · Accepted Answer

The money multiplier is calculated as 1 divided by the reserve ratio. With a reserve ratio of one-third (or 0.33), the money multiplier is approximately 1 / 0.33 = 3. However, considering the currency in circulation and deposits, the effective money multiplier is lower, closer to 2.0.

If the Desired Reserve Ratio Is One-Third, Currency in Circulation