If the reserve ratio increased from 10 percent to 20 percent,the money multiplier would
A)rise from 10 to 20.
B)rise from 5 to 10.
C)fall from 10 to 5.
D)not change.

Question

Quizplus · Accepted Answer

The money multiplier is calculated as the reciprocal of the reserve ratio. Thus, if the reserve ratio increases from 10 percent to 20 percent, the money multiplier will decrease from 1/0.1 = 10 to 1/0.2 = 5. Therefore, the correct answer is C, which indicates that the money multiplier would fall from 10 to 5.

If the Reserve Ratio Increased from 10 Percent to 20