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Chapter 1: Q.20 (page 9)

What is the formula for the money multiplier?

Short Answer

Expert verified

The formula is 1R(Required Reserve ratio). The change in the amount of deposits in which money supply affects to a maximum extent represents the money multiplier.

Step by step solution

01

Concept Introduction

The reserves in the banking system and the plutocrat force relationship are nominated as plutocrat multipliers.1Ris the formula for plutocrat multiplier. R stands for the reserve rate.

02

The formula for money multiplier.

The quantum of plutocrat that a bank generates with its reserves is nominated as a plutocrat multiplier. Reserve is an quantum of deposit that a bank holds. The reserves are increased when banks are entered deposits. The formula is 1R( Needed Reserve rate). The change in the quantum of deposits in which plutocrat force affects to a maximum extent represents the plutocrat multiplier.

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Most popular questions from this chapter

In the Keynesian framework, which of the following events might cause a recession? Which might cause inflation? Sketch AD/AS diagrams to illustrate your answers.

a. A large increase in the price of the homes people own.

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c. The development of a major new technology offers profitable opportunities for business.

d. The interest rate rises.

e. The good imported from a major trading partner become much less expensive.

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