ECONOMICS
MONEY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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2
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5
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8
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10
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Detailed explanation-1: -The required reserve ratio to give a money multiplier of 12.5 is 0.8 or 8%.
Detailed explanation-2: -AI Recommended Answer: money multiplier is 1.25.
Detailed explanation-3: -Yes! Keep playing. A money multiplier of 8 means that, with a reserve ratio of 8%, every one dollar of reserves should have $8 in money supply deposits. In other words, the money supply should be eight times the amount of money in reserves.
Detailed explanation-4: -The money supply could increase if the bank lent its excess reserves. Since the reserve requirement is 12.5%, the potential money multiplier is 1/0.125, or 8.
Detailed explanation-5: -The money multiplier formula is simply 1/r where r is the reserve ratio. This means that the smaller r is, the bigger the money multiplier is. Alternately, as r gets bigger, the money multiplier gets smaller, meaning there is less money supply in the economy.