Question

"Tuscan Bank is required to reserve $20 out of every $100 deposited, and it has $5,000,000 in deposits. What is the current money multiplier?

Answer 1

Answer: 5.

Explanation:

Given that,

If there are $100 deposited in an account, then Tuscan bank required to keep $20 as a reserves.

Therefore, required reserve ratio (rr)  is 20%.

Money multiplier = $\frac{1}{rr}$

                            = $\frac{100}{20}$

                            = 5

Therefore, the current money multiplier is 5.