If the Legal Reserve Ratio is 20%, what is the value of the money multiplier?
The money multiplier is 5. Using the simple reserve-ratio formula, \(m=1/r=1/0.20=5\), so a reserve ratio of 20% supports a fivefold deposit expansion.
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If the Legal Reserve Ratio is 20%, what is the value of the money multiplier?
Answer and explanation
Correct answer C
The money multiplier is 5. Using the simple reserve-ratio formula, , so a reserve ratio of 20% supports a fivefold deposit expansion.
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Kerala SET (LBS Centre)