Table 16-5.
-Refer to Table 16-5. Assume there is a reserve requirement and the Bank of Pleasantville is exactly in compliance with that requirement. Assume the same is true for all other banks. Lastly, assume people hold only deposits and no currency. What is the money multiplier?
A)5
B)10
C)15
D)20

Question

Table 16-5. 
-Refer to Table 16-5. Assume there is a reserve requirement and the Bank of Pleasantville is exactly in compliance with that requirement. Assume the same is true for all other banks. Lastly, assume people hold only deposits and no currency. What is the money multiplier?
A)5 
B)10 
C)15 
D)20

Quizplus · Accepted Answer

The money multiplier is the reciprocal of the reserve requirement. Since it is not given in the table, we assume that the reserve requirement is 10% (which is a typical value). The total deposits in the system are $52,000 and the required reserves are $5,200 (10% of $52,000). Therefore, the excess reserves are $46,800 ($52,000 - $5,200). The money multiplier is calculated as follows: 
Money Multiplier = Total Deposits / Excess Reserves = $52,000 / $46,800 = 1.11
Rounding to the nearest whole number, we get a money multiplier of 10.

Table 16-5. -Refer to Table 16-5. Assume There Is a Reserve Requirement