If the desired reserve ratio is 10 percent and there is no currency drain,then a $100 increase in the monetary base leads the banking system to increase the quantity of money by
A)$1,000.
B)$400.
C)$900.
D)$110.
E)$1,100.

Question

Quizplus · Accepted Answer

The money multiplier is the reciprocal of the reserve ratio. With a 10% reserve ratio, the money multiplier is 1/0.10 = 10. Therefore, a $100 increase in the monetary base results in a $100 x 10 = $1,000 increase in the quantity of money.

If the Desired Reserve Ratio Is 10 Percent and There