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If the required reserve ratio is 10 percent, what is the monetary multiplier? If the monetary multiplier is 4, what is the required reserve ratio?
The money multiplier at 10 percent required ratio is 10.
The required reserve ratio is 0.25 when the money multiplier is 4.

Respuesta :

If the required reserve ratio is 10 percent, the monetary multiplier is 10. If the monetary multiplier is 4, the required reserve ratio is 25%.

Required Reserve ratio (RR), also called the Cash Reserve ratio, refers to the percentage of deposits which commercial banks are required to keep as cash as per the directions of the central bank. The money multiplier (MM) refers to the factor by which an increase in the quantity of money will have on the money supply. It is equal to one divided by the required reserves ratio. It is given by: MM = 1/RR

If RR = 10% or 0.1, then

MM = 1/0.1 = 10

If MM = 4,

RR = 1/MM = ¼ = 0.25 or 25%.

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