Table 29-9
Metropolis National Bank is currently holding 2% of its deposits as excess reserves.
-Refer to Table 29-9. Metropolis National Bank is currently holding 2% of deposits as excess reserves. Assuming that all banks have the same required reserve ratio, and then none want to hold excess reserves what is the value of the money multiplier?
A)8.25
B)10
C)12
D)20

Question

Table 29-9
Metropolis National Bank is currently holding 2% of its deposits as excess reserves. 
-Refer to Table 29-9. Metropolis National Bank is currently holding 2% of deposits as excess reserves. Assuming that all banks have the same required reserve ratio, and then none want to hold excess reserves what is the value of the money multiplier?
A)8.25 
B)10 
C)12 
D)20

Quizplus · Accepted Answer

The money multiplier is calculated as the inverse of the reserve ratio. If banks are holding 2% as excess reserves, the total reserve ratio is the required reserve ratio plus 2%. Assuming the required reserve ratio is 8%, the total reserve ratio would be 10%, making the money multiplier 1/0.10 = 10.

Table 29-9 Metropolis National Bank Is Currently Holding 2% of Its Deposits