If the reserve requirement is 10%, then the actual money multiplier is 10 and the potential money multiplier is less than 10.

Question

Quizplus · Accepted Answer

The actual money multiplier is calculated as 1/reserve requirement ratio, so in this case, it would be 1/0.1 = 10. The potential money multiplier is calculated as 1/(reserve requirement ratio-currency ratio), where currency ratio refers to the amount of currency held by the public. Therefore, the potential money multiplier must be greater than the actual money multiplier, since it assumes that all reserve balances are used to create new deposits, whereas in reality, some of those reserves may be held as currency by the public.

If the Reserve Requirement Is 10%, Then the Actual Money