Question 55
HardOriginal questionWith a currency-deposit ratio (cdr) of 0.2 and a reserve-deposit ratio (rdr) of 0.1, the money multiplier (1 + cdr) ÷ (cdr + rdr) is
Show the answer and explanation
CorrectNot quiteAnswer B
Correct answer: B
Explanation
(1 + 0.2) ÷ (0.2 + 0.1) = 1.2 ÷ 0.3 = 4.
Cash held by the public lowers the multiplier from 1 ÷ 0.1 = 10.
Worth noting
10 ignores the cash that the public keeps out of banks.
- Concept
- Multiplier with a currency drain
- Typical timeTypical
- 100 s
- Your timeYours
- —
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