If the reserve ratio is 15 percent, the money multiplier is

Question

Quizplus · Accepted Answer

The money multiplier is calculated as 1/reserve ratio. Therefore, in this case, the money multiplier would be 1/0.15= 6.7. However, the question is asking for the inverse of the money multiplier, so we will take the reciprocal of 6.7, giving us a value of approximately 0.149. This means that for every dollar of reserves held by the bank, the money supply can increase by $0.149. Alternatively, we can calculate the money multiplier as (1/0.15)-1, which equals 5.7.

If the Reserve Ratio Is 15 Percent, the Money Multiplier