Assume that all banks fully loan out excess reserves and all money is redeposited into banks.

If the money multiplier is 4 , what is the reserve requirement?
Choose 1 answer:
(A) $10 \%$
(B) $50 \%$
(c) $5 \%$
(D) $25 \%$
(E) $20 \%$

Question

Assume that all banks fully loan out excess reserves and all money is redeposited into banks.

If the money multiplier is 4 , what is the reserve requirement?
Choose 1 answer:
(A) $10 \%$
(B) $50 \%$
(c) $5 \%$
(D) $25 \%$
(E) $20 \%$

Accepted Answer

∻Solution by Steps∻ ‖ step 1 ⋮ The money multiplier (MM) is the inverse of the reserve requirement ratio (RRR). The formula for the money multiplier is: $$ MM = \frac{1}{RRR} $$ ‖ ‖ step 2 ⋮ Given that the money multiplier is 4, we can set up the equation: $$ 4 = \frac{1}{RRR} $$ ‖ ‖ step 3 ⋮ To find the reserve requirement ratio, we take the reciprocal of the money multiplier: $$ RRR = \frac{1}{4} $$ ‖ ‖ step 4 ⋮ Convert the reserve requirement ratio into a percentage: $$ RRR = \frac{1}{4} imes 100\% = 25\% $$ ‖ ∻Answer∻ ***D*** ∻Key Concept∻ ⚹Money Multiplier and Reserve Requirement Ratio⚹ ∻Explanation∻ ⚹The reserve requirement ratio is the reciprocal of the money multiplier, and it can be converted into a percentage to find the required reserve percentage for banks.◊What is the formula to calculate the reserve requirement given the money multiplier⍭ Generate me a similar question◊⚹

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