Table 10-3
The following information pertains to the Bank of Kamloops.
-Refer to the Table 10-3.Assume that the Bank of Kamloops is holding the required percent of deposits as reserves.Also,assume all other banks hold only the required percent of deposits as reserves,and that people hold only deposits and no currency.What is the money multiplier?
A) 1
B) 5
C) 10
D) 15

Question

Table 10-3
The following information pertains to the Bank of Kamloops. 
-Refer to the Table 10-3.Assume that the Bank of Kamloops is holding the required percent of deposits as reserves.Also,assume all other banks hold only the required percent of deposits as reserves,and that people hold only deposits and no currency.What is the money multiplier?
A) 1 
B) 5 
C) 10 
D) 15

Quizplus · Accepted Answer

The money multiplier is calculated as 1/reserve requirement ratio. In this case, the reserve requirement ratio is 10% (0.10) and therefore the money multiplier is 1/0.10 = 10. This means that a $1 increase in reserves can lead to a $10 increase in the money supply through the banking system.

Table 10-3 The Following Information Pertains to the Bank of Kamloops