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Question

If the currency-deposit ratio equals 0.5 and the reserve-deposit ratio equals 0.1, then the money multiplier is

A 0.6 Correct Answer Incorrect Answer
B 0.2 Correct Answer Incorrect Answer
C 0.9 Correct Answer Incorrect Answer
D 2 Correct Answer Incorrect Answer
E 2.5 Correct Answer Incorrect Answer

Solution

If the currency-deposit ratio equals 0.5 and the reserve-deposit ratio equals 0.1, then the money multiplier is given by (1+k) / (r+k) = 1.5/0.6 = 2.5

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