Money multiplier is inversely related to LRR as Money Multiplier =LRR1.
Q. What two policies can the government use to stabilize the economy?
Governments have two general tools available to stabilize economic fluctuations: fiscal policy and monetary policy.
Table of Contents
- Q. What two policies can the government use to stabilize the economy?
- Q. What do mainstream economists consider to be one cause of economic stability?
- Q. What is Money Multiplier What is the relation between LRR and money multiplier explain with an example?
- Q. How does the deposit multiplier work?
- Q. Is legal reserve ratio is 20% the value of money multiplier will be?
- Q. When CRR is 20% then credit multiplier will be?
- Q. When the required reserve ratio is 20 percent the money multiplier is?
Q. What do mainstream economists consider to be one cause of economic stability?
Mainstream economists view instability of investment as the main cause of the economy’s instability. They see monetary policy as a stabilizing factor since it can adjust interest rates to keep investment and aggregate demand stable.
Q. What is Money Multiplier What is the relation between LRR and money multiplier explain with an example?
Money Multiplier = 1/LRR. In the above example LRR is 20% i.e., 0.2, so money multiplier is equal to 1/0.2=5. Why only a fraction of deposits is kept as Cash Reserve? a) All depositors do not withdraw the money at the same time.
Q. How does the deposit multiplier work?
The deposit multiplier is the inverse of the required reserves. So if the required reserve ratio is 20%, the deposit multiplier ratio is 80%. So if the deposit multiplier is 80%, the bank must keep $1 in reserve for every $5 it has in deposits. The remaining $4 is available to the bank to lend out or invest.
Q. Is legal reserve ratio is 20% the value of money multiplier will be?
Answer and Explanation: 1. If the reserve ratio is 20 percent, the money multiplier is c. 5.
Q. When CRR is 20% then credit multiplier will be?
Just to give you a perspective, a single deposit of Rs. 1000 with a CRR of 20% (1/5th) leads to the credit creation of Rs. 5000. Therefore, the size of the multiplier is 5 (1000×5 = 5000).
Q. When the required reserve ratio is 20 percent the money multiplier is?
The required reserve ratio is 20%. So the money multiplier is 1 / 20% = 1 / . 20 = 5. So the change in the nation’s money supply is 5 times $1,000 = $5,000.
