Answer:
The correct answer is 8%.
Explanation:
The money multiplier shows the degree of change that can be caused in the money supply due to a change in the deposits. It is calculated as 1/RR or required reserve ratio.
If the Federal reserve bank wants the money multiplier to be 12.5,
Money multiplier = [tex]\frac{1}{RR}[/tex]
12.5 = [tex]\frac{1}{RR}[/tex]
RR = [tex]\frac{1}{12.5}[/tex]
RR = 0.08
So the required reserve ratio should be 8%.
