ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -So if the required reserve ratio is 20%, the deposit multiplier is five. This means that for every $1 the bank has in reserves, it can increase the money supply by up to $5. If the reserve ratio was 10%, the deposit multiplier would be 10, and the bank could increase the money supply by $10 for every $1 in reserves.

Detailed explanation-2: -The deposit multiplier is the inverse of the reserve requirement ratio. For example, if the bank has a 20% reserve ratio, then the deposit multiplier is 5, meaning a bank’s total amount of checkable deposits cannot exceed an amount equal to five times its reserves.

Detailed explanation-3: -If the reserve requirement is 20 percent, the monetary multiplier will be 4. Excess reserves refer to the: A. difference between a bank’s vault cash and its reserves deposited at the Federal Reserve Bank.

Detailed explanation-4: -The Formula for Money Multiplier With a reserve ratio of 5%, a money multiplier of 1/0.05 or 20 is expected. The money multiplier of 20 is expected because if you have deposits of $1 million and a reserve ratio of 5%, you can then lend out $20 million.

Detailed explanation-5: -Answer and Explanation: 1. If the reserve ratio is 20 percent, the money multiplier is c. 5.