The banking system has just experienced an increase in deposits of $50,000. The currency drain ratio is 20 percent and the desired reserve ratio is 10 percent. What does the money multiplier equal?
A) 4.00
B) 3.33
C) 0.25
D) 10.00

Question

Quizplus · Accepted Answer

The money multiplier is calculated as 1 / (currency drain ratio + desired reserve ratio). In this case, the money multiplier is 1 / (0.20 + 0.10) = 4.00.

The Banking System Has Just Experienced an Increase in Deposits