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Assume a financial system has a monetary base of $25 million. The required reserves ratio is 10 percent, and there are no leakages in the system. What is the size of the money multiplier?.

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abiolataiwo2015

Based on the information given the size of the money multiplier is 10.

Money multiplier:

We are going to make use of money multiplier formula to determine the size of the money multiplier.

Hence,

Using this formula

Money multiplier=1/r

Where:

r=Required reserve ratio=10% or 0.10

Let plug in the formula

Money multiplier=1/0.10

Money multiplier=10

Inconclusion the size of the money multiplier is 10.

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