Answered

Let [tex]r = 0.07[/tex] be the reserve rate. Which of the following is the money multiplier?

A. [tex]10 \cdot 0.07[/tex]
B. [tex]0.07^2[/tex]
C. [tex]\frac{1}{0.07^2}[/tex]
D. [tex]\frac{1}{0.07}[/tex]



Answer :

GinnyAnswer
To determine the correct money multiplier given the reserve rate [tex]\( r = 0.07 \)[/tex], we need to understand the formula for the money multiplier.

The money multiplier is calculated as the inverse of the reserve rate. Mathematically, it can be expressed as:

[tex]\[ \text{Money Multiplier} = \frac{1}{\text{Reserve Rate}} \][/tex]

Given the reserve rate [tex]\( r = 0.07 \)[/tex], we can substitute this value into the formula:

[tex]\[ \text{Money Multiplier} = \frac{1}{0.07} \][/tex]

This means that the money multiplier is the value you get when you divide 1 by 0.07. The exact numerical result of this division is a non-repeating decimal:

[tex]\[ \frac{1}{0.07} = 14.285714285714285 \][/tex]

Therefore, the correct option among the provided choices is:

D. [tex]\(\frac{1}{0.07}\)[/tex]

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