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31 October, 22:23

The currency deposit ratio is c 0.10. The reserve requirement rr, is 0.08. the excess reserve ratio, e is 0.05. what is the size of the money multiplier?

A. 4.70. B. 4.75. C. 4.00. D. 4.78.

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  1. 1 November, 01:26
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    Answer: 4.78

    Explanation: Money multiplier could be explained as the maximum amount of commercial bank money that can be created given a certain amount of money in the monetary base under a fractional-reserve banking system. I. Other words, the ratio or statistic of commercial bank money you the central bank money.

    In this question, money multiplier is calculated using the relation:

    M = (1 + c) : (rr + e + c)

    Where:

    c = currency deposit ratio

    rr = reserve requirement

    e = excess reserve ratio

    M = money multiplier

    M = (1+0.1) / (0.08+0.05+0.1)

    M = 1.1 / 0.23

    M = 4.78
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