Question

If the reserve ratio is 4 percent, then the money multiplier is:

A) 0.04
B) 25
C) 2.5
D) 4

Answer 1

When the reserve ratio is 4%, the money multiplier is found by dividing 1 by 0.04, which equals 25.

Therefore, the correct answer is B) 25.

Step-by-step explanation:

If the reserve ratio is 4 percent, then the money multiplier is calculated by taking 1 divided by the reserve ratio. Given a reserve ratio of 0.04 (or 4%), the formula for the money multiplier would be 1 divided by 0.04. The result of that division is 25.

The money multiplier can be calculated using the formula 1/reserve ratio.

For example, if the reserve ratio is 4 percent (or 0.04), then the money multiplier would be 1/0.04, which is equal to 25.

Therefore, the correct answer is B) 25.