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Chapter 15: Q. 15 (page 348)

The reserve ratio is 11 percent. What is the value of the potential money multiplier?

Short Answer

Expert verified

The value of potential money multiplier is 9.09when the reserve ratio is 11%

Step by step solution

01

Potential money multiplier.

With each dollar reserve, the economy or financial system will generate a certain quantity of money. The reserve ratio will determine this. The more money the bank keeps in reserve, the fewer loans it will make.

02

Find Potential money multiplier.

Multiplayer money is calculated by multiplying the required reserve ration by the reciprocal of the required reserve ration, as illustrated below.

Reserve ratio=11%=0.11

Potential money multiplier=1reserveratio

=10.11=9.09

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