Question

If the Federal Resene sets the reserve rate to 20%, what is the resulting money multiplier?​

Answer 1

The answer is 5
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Answer 2

5

Explanation:

Money multiplier helps to explain how an economic activity boosts the economic output for the country. It shows how saving in terms of deposit increases the net supply of money in any economy.

Money multiplier = 1/reserve ratio

given reserve ratio = 20% = 20/100 = 0.2

thus,

Money multiplier = 1/0.2 = 5