Question

Suppose an increase in the monetary base of ​$3​00,000 increases the quantity of money by ​$600,000. Calculate the money multiplier.

Answer 1

Answer:

• Calculate the money multiplier.

MM : 2

Explanation:

The money multiplier is the number of times that the monetary base is used in the economy, it's calculated as follows:

Money Supply = Monetary Base * Money Multiplier  

Money Multiplier = Money Supply / Monetary Base  

Money Multiplier = 600 / 300 = 2  

The Money Supply is affected by the reserve of money that the banks keeps as required reserves and excess reserves, so, total reserves, it means less money to spent or lent.

Answer 2

The money multiplier used in this instance is 2.

What is Money Multiplier?

This refers to the number of times in which the monetary base is used in an economy,

Hence,e to find the money multiplier, we would:

• Money Supply = Monetary Base * Money Multiplier  
• Money Multiplier = Money Supply / Monetary Base  
• Money Multiplier = 600 / 300 = 2  

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