The oversimplified money multiplier formula, when the required reserve ratio is m, is
A)change in money supply = change in reserves × m.
B)change in money supply = (1 / m) / change in reserves.
C)change in money supply = (1 / m) × change in reserves.
D)change in money supply = m / change in reserves.

Question

Quizplus · Accepted Answer

The correct formula for the money multiplier is that the change in money supply equals the change in reserves multiplied by the reciprocal of the required reserve ratio. This can be written as change in money supply = (1 / m) x change in reserves. Therefore, choice C is the correct answer.

The Oversimplified Money Multiplier Formula, When the Required Reserve Ratio