5. The money multiplier is equal to the reciprocal of the reserve requirement ratio. However, scholars have pointed out that such formula only provide the upper limit (maximum value) of the money multiplier seeing that the money multiplier is typically less than what the formula estimates. Why is this the case? Explain in detail.
5. The money multiplier is equal to the reciprocal of the reserve requirement ratio. However, scholars have pointed out that such formula only provide the upper limit (maximum value) of the money multiplier seeing that the money multiplier is typically less than what the formula estimates. Why is this the case? Explain in detail.
Chapter12: Money And Banking
Section: Chapter Questions
Problem 13E
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Transcribed Image Text:6. The money multiplier is equal to the reciprocal of the reserve requirement ratio. However,
scholars have pointed out that such formula only provide the upper limit (maximum value) of
the money multiplier seeing that the money multiplier is typically less than what the formula
estimates. Why is this the case? Explain in detail.
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