ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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-2: -The required reserve ratio can be calculated by simply dividing the amount of money a bank is required to hold in reserve by the amount of money it has on deposit. For example, if a bank has $10 million in deposits and $500, 000 are required to be held in reserve, then the required reserve ratio would be 1/20 or 5%.

Detailed explanation-3: -June 2021) Full-reserve banking (also known as 100% reserve banking, narrow banking, or sovereign money system) is a system of banking where banks do not lend demand deposits and instead, only lend from time deposits.

Detailed explanation-4: -The Fed may choose to lower the reserve ratio to increase the money supply in the economy. A lower reserve ratio requirement gives banks more money to lend, at lower interest rates, which makes borrowing more attractive to customers.