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The currency drain ratio is 0.2 and the desired reserve ratio is 0.4. What is the...


The currency drain ratio is 0.2 and the desired reserve ratio is 0.4. What is the money multiplier? The money multiplier is >
The currency drain ratio is 0.2 and the desired reserve ratio is 0.4. What is the money multiplier? The money multiplier is >>> Answer to 1 decimal place.
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ReportAnswer #1

Answer

Formula :

Money multiplier(m) = M/H

where M = Money supply = C + D where C = Currency, D = Deposit

H = Monetary Base = C + R where C = Currency, R = Desired reserves

=> Money multiplier(m) = M/H = (C + D)/C + R)

=> m = (C/D + 1)/(C/D + R/D)

where C/D = currency drain ratio = 0.2, R/D = Desired reserve ratio = 0.4

=> Money multiplier(m) = (C/D + 1)/(C/D + R/D) = (0.2 + 1)/(0.2 + 0.4) = 2

Hence, The money multiplier is 2.

ReportAnswer #2

^ You forgot the decimal place; its 0.02 & 0.04

= 17


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