Money supply can be expanded and contracted by a multiple equal to

Question

Quizplus · Accepted Answer

The money supply can be expanded and contracted through the money multiplier process, which is determined by the required reserve ratio. The higher the required reserve ratio, the lower the money multiplier, and vice versa. The reciprocal of the required reserve ratio represents the maximum multiple by which the money supply can be expanded or contracted. For example, if the required reserve ratio is 10%, the money multiplier is 1/0.1 = 10, meaning that an increase in $1 of reserves can lead to an expansion of the money supply by up to $10, and a decrease in $1 of reserves can lead to a contraction of the money supply by up to $10.

Money Supply Can Be Expanded and Contracted by a Multiple