f the reserve requirement is 20 percent, the monetary multiplier will be 4:

Question

True

False

Answer 1

True.

The monetary multiplier is calculated as the inverse of the reserve requirement ratio. If the reserve requirement is 20 percent (or 0.20), the monetary multiplier (MM) can be calculated as follows:

$$MM=\frac{1}{\text{Reserve Requirement}}=\frac{1}{0.20}=5$$

However, the statement says the monetary multiplier is 4. Therefore, the correct answer is False.