Money multiplier (K) is the ratio of the stock of money to the stock of high-powered money, which is…
The money multiplier is larger when both the reserve-deposit ratio and the currency-deposit ratio are smaller. From \(K=(1+cu)/(re+cu)\), an increase in \(re\) lowers the…
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Money multiplier (K) is the ratio of the stock of money to the stock of high-powered money, which is given by
Where M is the money stock which depends on currency-deposit ratio, cu and H is the stock of high powered money which depends on reserve-deposit ratio, re and cu.
The money multiplier is larger, when
Answer and explanation
Correct answer D
The money multiplier is larger when both the reserve-deposit ratio and the currency-deposit ratio are smaller. From , an increase in lowers the multiplier, and an increase in also lowers it when , as implied by .
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West Bengal SET (WB SET)