Table 21-5.

-Refer to Table 21-5.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 21-5.
 
-Refer to Table 21-5.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 Formula for money multiplier is 1/reserve ratio. From the table, the reserve ratio is 0.10 (10% reserve requirement). Thus, the money multiplier is 1/0.10, which equals 10.

Table 21-5. -Refer to Table 21-5.Assume There Is a Reserve Requirement and a Reserve