The people in an economy have $10 million in money. There is only one bank that all the people deposit their money in and it holds 5% of the deposits as reserves. What is the money multiplier in this economy? Question 24 options: a) 1 b) 5 c) 20 d) 10<\/p>\n\n\n\n
The correct answer and explanation is:<\/mark><\/strong><\/p>\n\n\n\n The correct answer is d) 10<\/strong>.<\/p>\n\n\n\n Explanation<\/strong>:<\/p>\n\n\n\n The money multiplier is a concept in banking and economics that refers to the amount of money the banking system can create with an initial deposit, given a reserve requirement. The formula for calculating the money multiplier is: Money Multiplier=1Reserve Ratio\\text{Money Multiplier} = \\frac{1}{\\text{Reserve Ratio}}<\/p>\n\n\n\n Where the reserve ratio<\/strong> is the fraction of deposits that the bank must hold as reserves and not lend out. In this case, the reserve ratio is given as 5%<\/strong>, or 0.05<\/strong> in decimal form.<\/p>\n\n\n\n So, applying the formula: Money Multiplier=10.05=20\\text{Money Multiplier} = \\frac{1}{0.05} = 20<\/p>\n\n\n\n Therefore, the money multiplier in this economy would be 20<\/strong>. This means that for every $1 deposited into the bank, the banking system can create up to $20 in total money supply after accounting for the money the bank must keep in reserve.<\/p>\n\n\n\n The process works through the bank lending out a portion of the deposits to borrowers, who in turn may deposit the money into other accounts. The cycle continues, creating more money in the economy as the deposits are re-lent, while the bank keeps only 5% of each deposit as reserves. The higher the reserve requirement, the smaller the money multiplier, and vice versa.<\/p>\n","protected":false},"excerpt":{"rendered":" The people in an economy have $10 million in money. There is only one bank that all the people deposit their money in and it holds 5% of the deposits as reserves. What is the money multiplier in this economy? Question 24 options: a) 1 b) 5 c) 20 d) 10 The correct answer and […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-247937","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/247937","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=247937"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/247937\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=247937"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=247937"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=247937"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}