How Does the Desired Reserve Ratio Affect the Money Multiplier

question 111

Multiple Choice

How does the desired reserve ratio affect the money multiplier?  

• A) the higher the desired reserve ratio, the larger the money multiplier 
• B) the higher the desired reserve ratio, the smaller the money multiplier 
• C) the higher the desired reserve ratio, the more likely there will be no effect on the money multiplier 
• D) the higher the desired reserve ratio, the more likely the money multiplier may increase or decrease

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Definitions:

Creditor

An individual, company, or institution that lends money or extends credit to another party, expecting to be repaid in the future.

Discount Rate

The interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.

Borrower

An individual or entity that receives funds from a lender under the condition of returning it over time, with interest.

Lender

An individual, a financial institution or another entity that provides funds to others with the expectation that the funds will be repaid, typically with interest.