-Refer to Table 10-4. Assume that all banks hold the same reserve ratio as the Bank of the Kawarthas. What is the money multiplier?
A) 3.5
B) 17.5
C) 19
D) 20

Question

-Refer to Table 10-4. Assume that all banks hold the same reserve ratio as the Bank of the Kawarthas. What is the money multiplier?
A) 3.5 
B) 17.5 
C) 19 
D) 20

Quizplus · Accepted Answer

The money multiplier is the reciprocal of the reserve ratio. If all banks hold the same reserve ratio as the Bank of the Kawarthas, and assuming the reserve ratio is 5% (as is common in examples like this, though the exact figure isn't provided here), the money multiplier would be 1 divided by the reserve ratio (1/0.05 = 20).