Question

If the federal reserve sets the reserve rate at 20%, what is the resulting money multiplier

Answer 1

the federal reserve goes at every 2 percent.

Answer 2

Answer: The resulting money multiplier =5

Explanation:

Given: The reserve set by federal reserve r= 20% =0.2

It is known that the money multiplier represents the greatest amount the supply of money increase on the bases of an increase in reserves within the banking system.

Also, the formula to calculate the money multiplier(M) is given by :-

`M=(1)/(r)`, where r is the reserve rate.

Then, the money multiplier will be given by :

`M=(1)/(0.2)=5`

Hence, the resulting money multiplier = 5