In: Economics
If $500 of new reserves generates $1000 of new money in the economy, then the money multiplier is
a. |
2 and the reserve ratio is 2 percent. |
|
b. |
0.5 and the reserve ratio is 50 percent. |
|
c. |
0.5 and the reserve ratio is 2 percent. |
|
d. |
2 and the reserve ratio is 50 percent. |
Money multiplier = 1/ Reserve
ratio
It is given in the question that, $500 of new reserves generates
$1000 of new money
therefore, The reserve ratio = $500 / $1000 x 100
= 50%
Money multiplier = 1/0.5 ( i.e 50%)
= 2.
So the answer is d) 2 and the reserve ratio is
50%.