If the currency-depoist ratio equals 0.5 and the reserve-depoist ratio equals 0.1,then the money multiplier equals:A.2.5B.0.8C.2.6D.1.7
Question
If the currency-deposit ratio equals 0.5 and the reserve-deposit ratio equals 0.1, then the money multiplier equals:
A. 2.5
B. 0.8
C. 2.6
D. 1.7
Solution
The money multiplier (m) is calculated using the formula:
m = 1 + cr / rr + cr
where cr is the currency-deposit ratio and rr is the reserve-deposit ratio.
Given that cr = 0.5 and rr = 0.1, we can substitute these values into the formula:
m = 1 + 0.5 / 0.1 + 0.5 = 1 + 5 = 6
Therefore, the money multiplier is 6.
However, none of the options provided (A, B, C, D) match this calculation. There might be a mistake in the question or the provided options.
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