Gce Model Questions Vol1 2018 Economics Question 28

Practice objective / multiple choice question 28 from the 2018 Gce Model Questions Vol1 Economics examination.

Gce Model Questions Vol1 2018 Economics Objective / Multiple Choice Medium Difficulty
Question 28 GCE_MODEL_QUESTIONS_VOL1 • 2018 • ECONOMICS • objective

In an economy the currency‑deposit ratio (c) is 0.20 and the required reserve ratio (r) is 0.10. (i) Compute the money multiplier. (ii) If the central bank injects $100 million of base money, what is the resulting money supply? (iii) Suppose the reserve ratio is reduced to 0.08 while the currency‑deposit ratio remains unchanged. Re‑calculate the money multiplier and the new money supply for the same $100 million base money injection.

Answer Options

A. Initial multiplier 3.5, money supply $350 million; new multiplier ≈4.00, new money supply ≈$400 million.
B. Initial multiplier 5, money supply $500 million; new multiplier ≈5.10, new money supply ≈$510 million.
Correct Answer C. Initial multiplier 4, money supply $400 million; new multiplier ≈4.29, new money supply ≈$428.6 million.
D. Initial multiplier 4, money supply $380 million; new multiplier ≈4.20, new money supply ≈$420 million.
Correct Answer
C
Correct Option:
Initial multiplier 4, money supply $400 million; new multiplier ≈4.29, new money supply ≈$428.6 million.

About This Question

This is Gce Model Questions Vol1 2018 Economics Question 28. It is one of the objective questions from the 2018 Gce Model Questions Vol1 Economics examination.

Difficulty level: Medium .

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