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Question
If legal reserve ratio is 20%, the value of money multiplier would be ______.
Options
2
3
5
4
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Solution
If legal reserve ratio is 20%, the value of money multiplier would be 5.
Explanation:
The money multiplier is calculated as the reciprocal of the legal reserve ratio (LRR). The formula is:
Money Multiplier = `1/"legal Reserve Ratio"`
If the legal reserve ratio is 20%, the money multiplier is:
Money Multiplier = `1/0.20 = 5`
Thus, the value of the money multiplier would be 5.
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