Final answer:
The statement about the money supply multiplier is false; the proper formula is 1 divided by the reserve ratio. The multiplier shows how the banking system can expand the money supply through loans and deposits based on a set reserve requirement.
Step-by-step explanation:
The statement that the money supply multiplier is equal to (1 + k)/(k + rr + re) is False. The correct formula for the money multiplier is 1 divided by the reserve ratio. The reserve ratio (rr) is the fraction of deposits that banks are required to hold in reserve and not lend out. In economics, the money supply multiplier effect is essential for understanding how banks create money and how the quantity of money in circulation can expand.
For example, if the reserve requirement for a bank is 10% (or 0.10), then the money multiplier would be calculated as 1 divided by 0.10, which equals 10. This means that for each dollar of reserves, the banking system can generate $10 of money through the process of making loans and receiving deposits.