Table 29-4 The following information pertains to the Bank of Edmonton.

-Refer to Table 29-4. Assume that the Bank of Edmonton is holding the required percent of deposits as reserves. Also, assume all other banks hold only the required percent of deposits as reserves, and that people hold only deposits and no currency. What is the money multiplier?
A)1
B)5
C)10
D)15

Question

Table 29-4 The following information pertains to the Bank of Edmonton.
 
-Refer to Table 29-4. Assume that the Bank of Edmonton is holding the required percent of deposits as reserves. Also, assume all other banks hold only the required percent of deposits as reserves, and that people hold only deposits and no currency. What is the money multiplier?
A)1 
B)5 
C)10 
D)15

Quizplus · Accepted Answer

The money multiplier is calculated as 1/required reserve ratio. In this case, the required reserve ratio is 10%, so the money multiplier is 1/0.1, which equals 10. This means that every dollar of reserves held by the Bank of Edmonton can create up to $10 of new money in the banking system.

Table 29-4 the Following Information Pertains to the Bank of Edmonton