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

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Business

Makhi Cooper

21 January, 04:42

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

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Kadin Hamilton · Answer 1

The money multiplier is in indication as to how the money should increase based on the amount of reserves in the bank. This value is the reciprocal of the reserve ratio.

In this item, the reserve ratio is equal to 15% which can also be written as 0.15. The money multiplier, m can be calculated as follows:

m = 1/r

m = 1/0.15 = 6.67

Thus, the money multiplier should be equal to 6.67.