If the currency-depoist ratio equals 0.5 and the reserve-depoist ratio equals 0.1,then the money multiplier equals:A.2.5B.0.8C.2.6D.1.7
Question
If the currency-depoist ratio equals 0.5 and the reserve-depoist ratio equals 0.1,then the money multiplier equals:A.2.5B.0.8C.2.6D.1.7
Solution
The money multiplier (m) is calculated using the formula:
m = 1 + cr / rr + cr
where cr is the currency-deposit ratio and rr is the reserve-deposit ratio.
Given that cr = 0.5 and rr = 0.1, we can substitute these values into the formula:
m = 1 + 0.5 / 0.1 + 0.5 = 1 + 5 = 6
Therefore, the money multiplier is 6.
However, none of the options provided (A, B, C, D) match this calculation. There might be a mistake in the question or the provided options.
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The simple money multiplier isGroup of answer choicesthe reciprocal of the required reserve ratio.always 1.the same as the required reserve ratio.different from bank to bank even if the required reserve ratio is the same for all banks.
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