If the ratio of currency to transaction accounts is 2, the ratio of nontransaction accounts to transaction accounts is 5, the ratio of retail money-market funds to transaction accounts is 1, the ratio of required reserves to transaction accounts is 0.08, and the ratio of excess reserves to transaction accounts is 0.02, the M1 multiplier is about
A)1.42.
B)2.12.
C)2.81.
D)4.24.

Question

Quizplus · Accepted Answer

The M1 multiplier is calculated as 1 / (currency ratio + nontransaction account ratio + retail money-market fund ratio + required reserve ratio + excess reserve ratio). In this case, the M1 multiplier is 1 / (2 + 5 + 1 + 0.08 + 0.02) = 1 / 8.1 = 0.123.

If the Ratio of Currency to Transaction Accounts Is 2