The multiple by which total deposits can increase for every dollar increase in reserves is the
A) required reserve ratio.
B) bank's line of credit.
C) deposit insurance limit.
D) money multiplier.

Question

Quizplus · Accepted Answer

The multiple by which total deposits can increase for every dollar increase in reserves is known as the money multiplier. It is calculated as the reciprocal of the required reserve ratio. Thus, if the required reserve ratio is 10%, the money multiplier would be 1/0.1 = 10. This means that for every additional dollar in reserves, the total deposits in the banking system can increase by up to $10.

The Multiple by Which Total Deposits Can Increase for Every