If the reserve ratio is 20 percent,then $100 of new reserves can generate
A)$60 of new money in the economy.
B)$250 of new money in the economy.
C)$500 of new money in the economy.
D)$2,000 of new money in the economy.

Question

Quizplus · Accepted Answer

The money multiplier is the inverse of the reserve ratio. With a reserve ratio of 20%, the money multiplier is 1/0.20 = 5. Therefore, $100 of new reserves can generate $100 * 5 = $500 of new money in the economy.

If the Reserve Ratio Is 20 Percent,then $100 of New