Answer :
The required reserve ratio is 3 % so the Money multiplier = 33.33
The money multiplier formula is:
Money Multiplier = 1 / Reserve Percentage
where reserve ratio = 3%
= 0.03 (given)
Money multiplier = 1/0.03
Money multiplier = 33.33
Now, will raising the reserve ratio raise or lower the money multiplier?
Check the money multiplier values for different reserve ratios to see patterns.
Reserve rate 4%, 5%, ..
Money multiplier = 1/0.04
= 25
Money multiplier = 1/0.05
= 20
The money multiplier is declining, as evidenced by the rising reserve ratio.
What is a Simple Deposit Multiplier?
A deposit multiplier is the maximum amount a bank can make for each unit it holds as a reserve. The deposit multiplier is the percentage of the amount deposited in the bank that can be borrowed. This percentage is usually determined by reserve requirements set by the Federal Reserve.
Learn more about deposit multiplier :
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