(Table) Consider the T-account in the table. If the reserve requirement is 20%, then: $$\begin{array} { | l | l | }
\hline \text { Assets } & \text { Liabilities } \
\hline \$ 14,000 \text { (cash) } & \begin{array} { l }
\$ 50,000 \text { (checking account } \
\text { balances) }
\end{array} \
\hline \$ 56,000 \text { (loans) } & \begin{array} { l }
\$ 20,000 \text { (loan recipients' checking } \
\text { account balances) }
\end{array} \
\hline
\end{array}$$
A) the potential money multiplier and the actual money multiplier are the same.
B) the potential money multiplier is larger than the actual money multiplier.
C) the potential money multiplier is smaller than the actual money multiplier.
D) the actual money multiplier is zero.

Question

(Table) Consider the T-account in the table. If the reserve requirement is 20%, then: $$\begin{array} { | l | l | } 
\hline \text { Assets } & \text { Liabilities } \
\hline \$ 14,000 \text { (cash) } & \begin{array} { l } 
\$ 50,000 \text { (checking account } \
\text { balances) }
\end{array} \
\hline \$ 56,000 \text { (loans) } & \begin{array} { l } 
\$ 20,000 \text { (loan recipients' checking } \
\text { account balances) }
\end{array} \
\hline
\end{array}$$
A) the potential money multiplier and the actual money multiplier are the same.
B) the potential money multiplier is larger than the actual money multiplier.
C) the potential money multiplier is smaller than the actual money multiplier.
D) the actual money multiplier is zero.

Quizplus · Accepted Answer

The potential money multiplier is 1/(reserve requirement) = 1/0.2 = 5. The actual money multiplier is (change in checking account balances)/(change in reserves) = (50,000 - 20,000)/(14,000 - 0) = 5. Therefore, the potential money multiplier and the actual money multiplier are the same.

(Table) Consider the T-Account in the Table A) the Potential Money Multiplier and the Actual Money Multiplier