Question

If the reserve ratio is 5% and the change in reserves is $10 billion, then the money multiplier is _____ and the change in the money supply is _____. Please choose the correct answer from the following choices, and then select the submit answer button. Answer choices 1; $5 billion 20; $200 billion 12.5; $187.5 billion 5; $40 billion

Answer 1

The money multiplier is 20 and the change in the money supply is $200 billion.

What is the money multiplier and change in money supply?

The money multiplier is the inverse of the reserve ratio. Reserve ratio is the percentage of deposits that is required of commercial banks to keep as reserves. The lower the ratio, the higher the increase in money supply.

Money multiplier = 1 / reserve ratio

1/5%

1 / 0.05 = 20

The change in money supply is the product of the money multiplier and the change in reserve.

Change in money supply = money multiplier x change in reserves

20 x $10 billion = 200 billion

To learn more about reserve ratio, please check: https://brainly.com/question/6831267

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