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When the legal reserve ratio is 30 percent, the monetary multiplier is:

A. 5
B. 4
C. 3.33
D. 2.5
E. 30

1 Answer

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Final answer:

The monetary multiplier when the reserve ratio is 30 percent is calculated using the formula 1 divided by the reserve ratio. This gives us a monetary multiplier of 3.33, which is option C.

Step-by-step explanation:

When the legal reserve ratio is 30 percent, we can calculate the monetary multiplier using the formula 1/reserve ratio. The reserve ratio is defined as the fraction of deposits a bank holds as reserves. It plays a crucial role in determining the extent to which the banking system can create money from a given amount of bank reserves.

Let's apply this formula to determine the monetary multiplier when the reserve ratio is 30 percent, which means 0.30 when expressed as a decimal:

Monetary Multiplier = 1 / Reserve Ratio
Monetary Multiplier = 1 / 0.30
Monetary Multiplier = 3.33

Therefore, with a reserve ratio of 30 percent, the monetary multiplier is 3.33 (option C).

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