Question

If the Federal Reserve sets the reserve rate to 2%, what is the resulting money

multiplier?
O A. 50
OB. 2
O C. 5
OD. 20
SUBM

Answer 1

The money multiplier is the inverse of the reserve requirement ratio. If the Federal Reserve sets the reserve rate to 2%, the reserve requirement ratio is 0.02, and the money multiplier is 1/0.02, which equals 50. Therefore, the correct answer is A. 50.