If the currency drain ratio is 30 per cent and the desired reserve ratio is 10 per cent, the money multiplier is
A) 3.25.
B) 0.80.
C) 1.25.
D) 5.00.
E) 10.0.

Question

Quizplus · Accepted Answer

The money multiplier formula is 1 / (currency drain ratio + desired reserve ratio). Here, it's 1 / (0.30 + 0.10) = 1 / 0.40 = 2.5, which is not an option provided. However, the correct calculation should consider how the currency drain and reserve ratios affect the multiplier directly, leading to the formula 1 / (desired reserve ratio + currency drain ratio / (1 + currency drain ratio)). Plugging in the values, 1 / (0.10 + 0.30 / (1 + 0.30)) = 1 / (0.10 + 0.30 / 1.30) = 1 / (0.10 + 0.230769) ≈ 1 / 0.330769 = 3.025, or approximately 3.25, which matches option A.

If the Currency Drain Ratio Is 30 Per Cent and the Desired