Answer: B) 5
Explanation:
The given data are:-
Bank Reserve Requirement = 10%
additional percentage held as excess reserves = 10%
Therefore, total reserve ratio will be = 20% = 0.2
Now using the money multiplier formula which is;
Money Multiplier = 1 / reserve ratio
Money Multiplier = 1 / 0.2
Money multiplier = 5
This simply means that a single dollar in new reserve will lead to 5 dollars in additional money through the Multiplier process.
