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Money and Multiplier Effect: Formula and Reserve Ratio

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question 1 of 3

Besides being known as the reserve ratio, what is the fraction of a customer's deposits that a bank is required to hold in reserve also called?

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1. The money multiplier is a relationship between which two drivers?

2. When $1,000 gets deposited into the banking system, and the reserve ratio is 10%, what is the most the money supply could increase?

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About This Quiz & Worksheet

When you deposit money in your bank account, the bank can use a portion of that deposit to try to generate a profit. Sometimes they'll accomplish this by giving out loans. Economists call this the multiplier effect because the deposit generated more economic activity. The quiz will test you on the intricacies of this idea and another closely related idea, the money multiplier.

Quiz & Worksheet Goals

Use these assessment tools to assess your knowledge of:

  • Fraction formula for banks having to hold onto cash reserves
  • Defining money multiplier
  • How to determine reserve ratio increases in money supply

Skills Practiced

  • Reading comprehension - ensure that you draw the most important information from the related multiplier effect and money multipliers lesson
  • Critical thinking - apply relevant concepts to examine information about bank deposits in a different light
  • Problem solving - use acquired knowledge to solve money multiplier practice problems
  • Interpreting information - verify that you can read information regarding reserve rations and interpret them correctly

Additional Learning

The lesson called Money and Multiplier Effect: Formula and Reserve Ratio covers the following topics:

  • How the multiplier effect 'injects' money into the economy
  • Defining reserve ratios and understanding their context
  • What is meant by an excess reserve
  • Understanding the relationship between reserve ratios and the money supply in the banking system
  • The role of central banks in a society
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