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Which of the following expressions correctly represents the money multiplier when the required reserve ratio is expressed as a decimal?

easy MCQ 1 mark Class 10 · Economics · Money and Credit
  1. 1 + RRR
  2. 1 divided by the required reserve ratio
  3. RRR times 100
  4. RRR minus 1
Answer
1 divided by the required reserve ratio

The correct answer is 1 divided by the required reserve ratio — Step 3: Among the given options, only option B matches this formula.

Step-by-step solution

  1. Step 1: The money multiplier is defined as the reciprocal of the required reserve ratio expressed as a decimal.
  2. Step 2: Therefore the formula is 1 ÷ RRR.
  3. Step 3: Among the given options, only option B matches this formula.
Common mistake: Confusing the multiplier with 1 + RRR

Concept tested: Money multiplier

Published · How this solution was prepared and checked

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