If total reserves for a bank are $25,000,excess reserves are zero,and demand deposits are $100,000,then the money multiplier must be:
A) 0.25.
B) 4.00.
C) 20.00.
D) 25.00

Question

Quizplus · Accepted Answer

The money multiplier is the inverse of the reserve ratio. If excess reserves are zero, all $25,000 are required reserves. The reserve ratio is $25,000 / $100,000 = 0.25. The inverse of 0.25 is 4, making the money multiplier 4.00.

If Total Reserves for a Bank Are $25,000,excess Reserves Are