If the minimum reserve ratio is 20 percent,then $1 of reserves can support a maximum of $10 more in transactions deposits.
In this case,$1 in deposits can support $5 in transactions deposits because the money multiplier is 5.

Question

Quizplus · Accepted Answer

The given statement is incorrect. The money multiplier is calculated using the formula:

Money multiplier = 1 / Required reserve ratio

In this case, the required reserve ratio is 20%, so the money multiplier would be:

Money multiplier = 1 / 0.2 = 5

This means that each $1 of reserves can support up to $5 of transactions deposits, not $10. Therefore, the correct answer is B (False).

If the Minimum Reserve Ratio Is 20 Percent,then $1 of Reserves