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QuestionWhat is the money multiplier if the reserve rate is set to 5%5\%? A. 50 B. 5 C. 20 D. 2

Studdy Solution

STEP 1

Assumptions1. The Federal Reserve sets the reserve rate to5% . The money multiplier is calculated using the formula Money Multiplier=1Reserve RateMoney\, Multiplier = \frac{1}{Reserve\, Rate}

STEP 2

First, we need to convert the reserve rate from a percentage to a decimal.5%=0.055\% =0.05

STEP 3

Now, plug in the given value for the reserve rate into the money multiplier formula.
Money Multiplier=10.05Money\, Multiplier = \frac{1}{0.05}

STEP 4

Calculate the money multiplier.
Money Multiplier=10.05=20Money\, Multiplier = \frac{1}{0.05} =20The resulting money multiplier when the Federal Reserve sets the reserve rate to% is20. So, the correct answer is C.20.

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