-Refer to Table 10-3. Assume that the Bank of Kamloops is holding the required percent of deposits as reserves. Also, assume all other banks hold only the required percent of deposits as reserves, and that people hold only deposits and no currency. What is the money multiplier?
A) 1
B) 5
C) 10
D) 15

Question

-Refer to Table 10-3. Assume that the Bank of Kamloops is holding the required percent of deposits as reserves. Also, assume all other banks hold only the required percent of deposits as reserves, and that people hold only deposits and no currency. What is the money multiplier?
A) 1 
B) 5 
C) 10 
D) 15

Quizplus · Accepted Answer

The money multiplier is the reciprocal of the reserve requirement. If banks are holding only the required percent of deposits as reserves and no additional information is provided, we assume a typical reserve requirement of 10%. The money multiplier is 1 divided by the reserve requirement (1/0.10), which equals 10.