The multiple by which the chartered banking system can expand the supply of money is equal to the reciprocal of:
A)the MPS.
B)its actual cash reserves.
C)its excess reserves.
D)the desired reserve ratio.

Question

Quizplus · Accepted Answer

The multiple by which the chartered banking system can expand the supply of money is equal to the reciprocal of the desired reserve ratio. This means that if the desired reserve ratio is 10%, then the banking system can expand the money supply by a multiple of 10, which is the reciprocal of 0.1. Therefore, the best choice is D.

The Multiple by Which the Chartered Banking System Can Expand