Table 16-7
Metropolis National Bank is currently holding 2% of its deposits as excess reserves.
-Refer to Balance Sheet of Metropolis National Bank. Metropolis National Bank is currently holding 2% of deposits as excess reserves. Assuming that all banks have the same required reserve ratio, and then none want to hold excess reserves what is the value of the money multiplier?
A)8.25
B)10
C)12
D)20

Question

Table 16-7
Metropolis National Bank is currently holding 2% of its deposits as excess reserves. 
-Refer to Balance Sheet of Metropolis National Bank. Metropolis National Bank is currently holding 2% of deposits as excess reserves. Assuming that all banks have the same required reserve ratio, and then none want to hold excess reserves what is the value of the money multiplier?
A)8.25 
B)10 
C)12 
D)20

Quizplus · Accepted Answer

The money multiplier is calculated as the inverse of the reserve ratio. If 2% of deposits are held as excess reserves, then the required reserve ratio is 10% (since 100% - 2% = 98%, and 98%/10% = 10). Therefore, the money multiplier is 1/0.10 = 10.

Table 16-7 Metropolis National Bank Is Currently Holding 2% of Its Deposits