Krugman's Economics For The Ap® Course
Krugman's Economics For The Ap® Course
3rd Edition
ISBN: 9781319113278
Author: David Anderson, Margaret Ray
Publisher: Worth Publishers
Question
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Chapter 25, Problem 6MCQ
To determine

The correct option that is the money multiplier if deposit is $100,000 and reserve is $5,000.

Expert Solution & Answer
Check Mark

Answer to Problem 6MCQ

Option d is correct.

Explanation of Solution

Explanation for correct option:

d.

Money multiplier is equal to 1/reserve ratio. It can be calculated as follows:

  Money multiplier=1Reserve ratio=15%=20

Therefore, option d is correct.

Explanation for incorrect option:

Since, it is calculation based, other options are incorrect.

Economics Concept Introduction

Money multiplier: Money multiplier can be referred as the ratio between money supply and the monetary base.

Monetary base: Monetary base refers to the sum of currency in circulation and the bank reserve. The percentage of currency in circulation is usually higher than the bank reserves.

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