Vault cash is equal to $8 million,deposits by depository institutions at the central bank are $2 million,the monetary base is $40 million,and bank deposits are $90 million.The money multiplier is equal to
A)2)5.
B)3)0.
C)4)0.
D)5)0.

Question

Quizplus · Accepted Answer

The money multiplier is equal to the ratio of the monetary base to bank deposits. Therefore, the money multiplier is (40 million + 2 million) / 90 million = 0.4667. However, this is not one of the answer choices. To find the reciprocal of this fraction, we get 2.1428 or approximately 2.5. Therefore, the closest answer choice is B, which is 3.0.

Vault Cash Is Equal to $8 Million,deposits by Depository Institutions