Question

Scenario: Holding Cash Suppose that the public holds 50% of the money supply in currency and the reserve ratio is 20 percent. Banks hold no excess reserves. A customer deposits $6000 in her chequeable deposit. 5. (Scenario: Holding Cash) The money multiplier is: a equal to 2 b.greater than 5. c 0 equal to 5. d loss than 5

Answer 1

_{money multiplier= (1+c)/(c+r)}

_{c= 0.5 and r= 0.2}

_{money multiplier= (1+0.5)/(0.5+0.2)= 2.14 = 2 approximately}

_{a. Equal to 2}