If the reserve requirement is 25%, then the potential money multiplier is _____ and the actual money multiplier is _____.
A) 4; equal to or less than 4
B) 25; less than 25
C) 25; greater than 25
D) 250; greater than 250

Question

Quizplus · Accepted Answer

The potential money multiplier is calculated by dividing 1 by the reserve requirement ratio expressed as a decimal. Thus, 1/0.25 = 4. The actual money multiplier, however, will depend on other factors such as the willingness of banks to lend and the demand for loans. Therefore, the actual money multiplier may be equal to 4, but it could also be less than 4.

If the Reserve Requirement Is 25%, Then the Potential Money