If an increase in the monetary base of $8 billion increases the quantity of money by $64 billion, then the money multiplier is equal to .
A) 1/8
B) $8 billion
C) 8
D) $64 billion

Question

Quizplus · Accepted Answer

The money multiplier is the reciprocal of the reserve requirement. Using the formula for the money multiplier: Money multiplier = 1/reserve requirement. We can solve for the reserve requirement:

money multiplier = increase in quantity of money / increase in monetary base
8 = 64 / X
X = 64/8 = 8

Reserve requirement = 1/money multiplier = 1/8

Therefore, the answer is C, 8.

If an Increase in the Monetary Base of $8 Billion