The money multiplier is equal to: Question 8 options: a) the ratio of the monetary base to the money supply. b) the money supply divided by the reserve ratio. c) about 3.9 in the United States. d) the ratio of the money supply to the monetary base.

D. The ratio of the money supply to the monetary base

Explanation:

Money multiplier: It is also called monetary multiplier. It refers to how an initial deposit leads to a greater final increase in the total money supply.

It is the ratio of increase or decrease in the money supply in relation to a proportional increase or decrease in deposits.

Money multiplier can be calculated by dividing change in total money supply by change in monetary base.

That is,

Money multiplier=change in total money supply: change in monetary base

The multiplier effect refers to the proportional amount of increase or decrease in final income that results from an increase or decrease in spending.

d) the ratio of the money supply to the monetary base.

Explanation:

Money multiplier is the maximum change in checkable deposits (extra money) resulting from an increase in bank reserves by one dollar.

Money multiplier are enhanced by the central bank.

Additionally, the money multiplier is equal to the ratio of the money supply to the monetary base. This simply means that it is equal to one (1) divided by the required reserve ratio;

MM = 1 / (required reserve-deposit ratio).