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If the required reserve ratio is one-third, currency in circulation is $300 billion, checkable deposits are $900 billion, and there is no excess reserve, then the M1 money multiplier is A) 2.5. B) 2.8. C) 2.0. D) 0.67.

Question

If the required reserve ratio is one-third, currency in circulation is 300billion,checkabledepositsare300 billion, checkable deposits are 900 billion, and there is no excess reserve, then the M1 money multiplier is A) 2.5. B) 2.8. C) 2.0. D) 0.67.

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Solution

The correct answer is A) 2.5. The M1 money multiplier is calculated as 1 divided by the required reserve ratio. If the required reserve

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