Question

The currency to deposit ratio of an economy is 0.2 and the reserve to deposit rates is 0.1, at present. What happens to the value of money multiplier if the currency to deposit ratio for whatever reason is now at 0.4?

• A. The money multiplier increases from 0.25 to 2.8
• B. The money multiplier increases from 0.25 to 1.25
• C. The money multiplier falls from 4 to 2.8
• D. The money multiplier increases from 2.8 to 4

Answer 1

Answer: (C)

The money multiplier falls from 4 to 2.8

Answer 2

The correct option is(C): The money multiplier falls from 4 to 2.8