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If the Federal Reserve sets the reserve rate to 4%, what is the resulting money multiplier?
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If the Federal Reserve sets the reserve rate to 4%, what is the resulting money
multiplier?

User MBCook
by
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1 Answer

13 votes

Answer:

The money multiplier is the ratio of money supply to the money base. The money base is the sum of currency in circulation and reserves held by commercial banks.

The reserve rate is the percentage of deposits that commercial banks must hold in reserve.

If the reserve rate is 4%, the money multiplier is 10.

Explanation:

User Gordon Westerman
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