If the target reserve ratio in the banking system is 20 percent, there is no cash drain, and there are no excess reserves, a new deposit of $1 will lead to an eventual expansion of the money supply of

Question

Quizplus · Accepted Answer

The money multiplier is 1 divided by the reserve ratio, which is 1/0.20 = 5. Therefore, a new deposit of $1 will lead to an expansion of the money supply by $1 x 5 = $5.00.

If the Target Reserve Ratio in the Banking System Is