If the reserve ratio is 5 percent, then $500 of additional reserves would ultimately generate
A)$10,500 of money.
B)$10,000 of money.
C)$9,500 of money.
D)$2,500 of money.

Question

Quizplus · Accepted Answer

The money multiplier formula is 1 / reserve ratio. With a 5% reserve ratio, the multiplier is 1 / 0.05 = 20. Therefore, $500 of additional reserves can ultimately generate $500 * 20 = $10,000 of money.

If the Reserve Ratio Is 5 Percent, Then $500 of Additional