Question

The Central Bank of Nigeria has set the reserve requirement at 25 percent. What is the money multiplier?

a) 2
b) 3
c) 4
d) 5

Answer 1

The money multiplier can be calculated using the formula 1/reserve ratio. In this case, with a reserve requirement of 25%, the money multiplier would be 4.

Step-by-step explanation:

The money multiplier can be calculated using the formula 1/reserve ratio, where the reserve ratio is the fraction of deposits that the bank wishes to hold as reserves. In this case, the reserve requirement is 25%, so the reserve ratio is 0.25. Therefore, the money multiplier would be 1/0.25, which equals 4.