If the reserve ratio is 8 percent,an additional $1,000 of reserves can increase the money supply by
A)$6,400
B)$8,000
C)$12,500
D)$20,000

Name: If the reserve ratio is 8 percent,an additional $1,000 of reserves can increase the money supply by A)$6,400 B)$8,000 C)$12,500 D)$20,000
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Question

Quizplus · Accepted Answer

The money multiplier is the reciprocal of the reserve ratio. With a reserve ratio of 8%, the money multiplier is 1/0.08 = 12.5. Therefore, $1,000 of reserves can increase the money supply by $1,000 * 12.5 = $12,500.

If the Reserve Ratio Is 8 Percent,an Additional $1,000 of Reserves