If the reserve ratio is 10 percent,$1,000 of additional reserves can create
A)$11,000 of new money.
B)$10,000 of new money.
C)$9,000 of new money
D)None of the above is correct.

Question

Quizplus · Accepted Answer

The money multiplier is the inverse of the reserve ratio, so with a 10% reserve ratio, the money multiplier is 10. Therefore, $1,000 of additional reserves can create $10,000 of new money ($1,000 * 10).

If the Reserve Ratio Is 10 Percent,$1,000 of Additional Reserves