If the required reserve ratio is 10% but the money multiplier is only 7, then:

Question

Quizplus · Accepted Answer

If the money multiplier is less than the required reserve ratio, then the banks are holding excess reserves. In this case, the money multiplier of 7 indicates that for every $1 of reserves, the bank can create $7 of deposits, which is less than the required reserve ratio of 10%. Therefore, the bank is holding excess reserves to ensure it meets the reserve requirements.

If the Required Reserve Ratio Is 10% but the Money