Assuming initially that r = 10%,c = 40%,and e = 0,a decrease in r to 5% causes the M1 money multiplier to ________,everything else held constant.

Question

Quizplus · Accepted Answer

The M1 money multiplier can be calculated as 1/(e+c+r), where e is the currency ratio, c is the required reserve ratio, and r is the excess reserve ratio. Initially, the M1 money multiplier is 1/(0+0.4+0.1)=2.5. When r decreases to 5%, the new M1 money multiplier becomes 1/(0+0.4+0.05)=2.5/1.05=2.38. Therefore, the M1 money multiplier decreases from 3.11 to 2.8.

Assuming Initially That R = 10%,c = 40%,and E =