What is the money multiplier

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1. The money, or financial, multiplier is equal to 1/ the reserve requirement, that is, Mk = 1/RR. Assume that RR = 20%. What is Mk? Now assume that the reserve requirement is lowered to 10%. What is the new Mk? What would happen to Mk if the RR were raised from 20% to 50%?

2. Assume that the reserve requirement is set at 100%. What is the money multiplier when RR = 100%? Why? What exactly is the reason for this?

Reference no: EM13771729

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