If the reserve ratio is 25 percent, the value of the money multiplier is

Question

a. 0.25.
b. 4.
c. 5.
d. 25.
e. none of the above.

Answer 1

The money multiplier can be calculated using the formula:

\[ \text{Money Multiplier} = \frac{1}{\text{Reserve Ratio}} \]

If the reserve ratio is 25 percent (or 0.25 in decimal form), the calculation would be:

\[ \text{Money Multiplier} = \frac{1}{0.25} = 4 \]

Therefore, the correct answer is:

b. 4.