If commercial banks must keep a reserve ratio of 20 percent and hold no excess reserves, the simple deposit multiplier is
Correct answer: C. 5
- A. 2
- B. 4
- C. 5
- D. 20
Explanation
The simple deposit multiplier equals 1 divided by the reserve ratio. With a reserve ratio of 0.20, the multiplier is 1 divided by 0.20, which equals 5.
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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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