Q13 of 25 Page 1

Calculate the value of money multiplier if the legal reserve requirements are 20%.

The money multiplier is the maximum amount the money supplied can be increased based on the increase in the reserves within the banking.


The total deposits the bank hold and is not allowed to lend are called reserves.


Money multiplier = 1/r , where r = reserve ratio


Money multiplier = 1/20 = 0.05


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