Question

Let r= .12 be the reserve rate. What is the money multiplier?

Answer 1

The money multiplier is 1/ 0.12 

Answer 2

Answer: 8.33

Explanation:

We know that the money multiplier represents the maximum amount the supply of money increase on the bases of an increase in reserves within the banking system.

The formula to calculate the money multiplier is given by :-

`\text{Money Multiplier}=(1)/(r)`, where r is the reserve rate

We are given that the reserve rate 'r'= 0.12

Then, the money multiplier will be given by :-

`\text{Money Multiplier}=(1)/(0.12)\\\\\Rightarrow\ \text{Money Multiplier}=8.3333333\approx8.33`