If the reserve ratio increased from 10 percent to 20 percent, which of the following would happen to the money multiplier?
A)It would rise from10 to 20.
B)It would rise from 5 to 10.
C)It would fall from 10 to 5.
D)It would not change.

Question

Quizplus · Accepted Answer

The money multiplier is calculated by dividing 1 by the reserve ratio. If the reserve ratio increases from 10% to 20%, then the denominator of this fraction doubles, making the whole fraction half as large. Therefore, the money multiplier would fall from 10 to 5.

If the Reserve Ratio Increased from 10 Percent to 20