Question

The same question stem will be used in the next 5 questions. Question stem: Assume that banks hold 7 percent excess reserves, the currency to deposit ratio is 15 percent, and the required reserve ratio is 10 percent. Suppose that the Federal Reserve purchases 250 million dollars worth of bonds from the public. First question for this stem: What is the value of the deposit multiplier

Answer 1

Answer: 10

Step-by-step explanation:

The Deposit multiplier is a number that enables us calculate the maximum total amount of money that can be generated from deposits in a bank after the bank has left a portion of its deposits as required reserves.

= 1 / Required reserve ratio

= 1 / 10%

= 10