Suppose the money multiplier is 5. If banks hold excess reserves, the required reserve ratio must:

Name: Suppose the money multiplier is 5. If banks hold excess reserves, the required reserve ratio must:
Brand: Quizplus
Rating: 5.0 (50 reviews)

Question

Quizplus · Accepted Answer

The money multiplier is the inverse of the required reserve ratio. If the money multiplier is 5, the required reserve ratio is 1/5 = 0.20 or 20%. Therefore, for banks to hold excess reserves, the required reserve ratio must be less than 0.20.

Suppose the Money Multiplier Is 5