If the currency drain is zero, which of the following situations leads to the greatest total increase in the quantity of money?
A) an increase in the monetary base of $100,000 when the desired reserve ratio is 5 percent
B) an increase in the monetary base of $120,000 when the desired reserve ratio is 10 percent
C) an increase in the monetary base of $200,000 when the desired reserve ratio is 20 percent
D) an increase in the monetary base of $250,000 when the desired reserve ratio is 15 percent
E) an increase in the monetary base of $100,000 when the desired reserve ratio is 50 percent

Question

Quizplus · Accepted Answer

The money multiplier is highest when the desired reserve ratio is lowest. With a 5% reserve ratio, the money multiplier is 20, leading to the greatest increase in the money supply from a $100,000 increase in the monetary base.

If the Currency Drain Is Zero, Which of the Following