Question

6. The money multiplier formula shows effects of
A. a cash deposit into banking system on the money supply
B. low interest rates on creditors over a long period
C. federal reserve discount rate reductions on the bond markets
D. a required reserve ratio on excess reserves

I need help on this, Unit 6 Lesson 10, please. CCA

Answer 1

money multiplier is used to predict changes in bank deposits on the total amount of money in the economy. So answer A captures that idea the best.

D is kind of the trick answer here, trying to get you to pick that one even though its wrong. The multiplier is calculated using the reserve ratio, which is why it might be tempting, but it does not tell us anything about the excess reserves!

Hope this helps.