Question
The money multiplier in an economy increases with which
one of the following?Solution
The money multiplier is the amount of money created by commercial banks for a given fixed amount of base money and reserve ratio. An increase in the cash reserve ratio prevents the banks from lending more money and reduces the money multiplier. An increase in the banking habit of the population will increase lending, thereby will lead to more deposits in the banking system, hence increasing the money multiplier. Even if there is an increase in the population of the country, the money multiplier in an economy does not necessarily increase.
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