Asked Nov 22, 2019

a) If the required reserve ratio is 10%, what is the monetary multiplier? 

b) If the monetary multiplier is 4, what is the required reserve ratio? 


Expert Answer

Step 1

a) The monetary multiplier refers to the money generated with each dollar of reserves. The monetary multiplier can be calculated as follows:


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1 Monetary Multiplier Required Reserve Ratio 1 0.1 =10

Step 2

Hence, the monetary multiplier is 10.

Step 3

b) The required reserve is a part of deposits that the banks have to keep apart from lending as...


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1 Required Reserve Ratio=] x100 Monetary Multiplier x100 =25%


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