Question

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.

Answer 1

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