Assume that the Federal Reserve sets a required reserve ratio of 5%. Then the money multiplier is
A) 5
B) 20
C) 50
D) 100

Question

Quizplus · Accepted Answer

The money multiplier is defined as 1/required reserve ratio. In this case, the required reserve ratio is 5%, so the money multiplier would be 1/0.05, which equals 20. Therefore, choice B is the correct answer as it represents the correct calculation of the money multiplier.

Assume That the Federal Reserve Sets a Required Reserve Ratio