Question

The multiple by which the commercial banking system can expand the supply of money is equal to:
a. The ratio of actual reserves to required reserves
b. The reciprocal of the federal funds rate
c. The reciprocal of the reserve ratio
d. The ratio of required reserves to actual reserves

Answer 1

Answer:

c. The reciprocal of the reserve ratio

Explanation:

The multiple by which the commercial banking system can expand the supply of money is called the multiplier. We calculate the multiplier by diving the reserve ratio by 1, which is also know as the the reciprocal of the reserve ratio. So for example if the reserve ratio is 10% we can find the multiplier by dividing 1 by 10% and find the multiplier. So 1/0.1= 10 so the multiplier which is also the reciprocal of the reserve ratio is 10.