If m equals the maximum number of new dollars that can be created for a single dollar of excess reserves and R equals the required reserve ratio, then for the banking system,
A)m = R − 1.
B)R = m/1.
C)R = m − 1.
D)m = 1/R.

Question

Quizplus · Accepted Answer

The maximum money multiplier (m) is the reciprocal of the required reserve ratio (R), so m = 1/R. This formula shows how much the money supply can increase based on the reserve ratio.

If M Equals the Maximum Number of New Dollars That