The amount by which the money supply expands with each additional dollar in reserves is the:
A) reserve ratio.
B) discount rate.
C) fractional reserve.
D) money multiplier.

Question

Quizplus · Accepted Answer

The amount by which the money supply expands with each additional dollar in reserves is called the money multiplier. It is determined by the reserve requirement, which is set by the central bank, and it represents the maximum amount of money that can be created with each unit of reserves. The higher the reserve requirement, the lower the money multiplier, and vice versa. The money multiplier is an important concept in monetary policy, as it helps policymakers to understand the relationship between changes in reserves and changes in the money supply.

The Amount by Which the Money Supply Expands with Each