Gce Model Questions Vol1 2025 Economics Question 34

Practice objective / multiple choice question 34 from the 2025 Gce Model Questions Vol1 Economics examination.

Gce Model Questions Vol1 2025 Economics Objective / Multiple Choice Medium Difficulty
Question 34 GCE_MODEL_QUESTIONS_VOL1 • 2025 • ECONOMICS • objective

In a closed economy, the public holds 20 % of bank deposits as cash (currency‑deposit ratio \(c = 0.20\)). The required reserve ratio is initially \(r = 0.10\).\n\n(a) Calculate the money multiplier and the total money supply if the monetary base is ₦100 million.\n\n(b) If the central bank raises the required reserve ratio to \(r' = 0.12\) while the currency‑deposit ratio remains unchanged, what is the new money multiplier and the new money supply? State the change in the money supply.

Answer Options

Correct Answer A. Initial multiplier 4.0, money supply ₦400 million; new multiplier 3.75, money supply ₦375 million; change = -₦25 million.
B. Initial multiplier 4.2, money supply ₦420 million; new multiplier 3.75, money supply ₦375 million; change = -₦45 million.
C. Initial multiplier 4.0, money supply ₦400 million; new multiplier 3.6, money supply ₦360 million; change = -₦40 million.
D. Initial multiplier 3.5, money supply ₦350 million; new multiplier 3.2, money supply ₦320 million; change = -₦30 million.
Correct Answer
A
Correct Option:
Initial multiplier 4.0, money supply ₦400 million; new multiplier 3.75, money supply ₦375 million; change = -₦25 million.

About This Question

This is Gce Model Questions Vol1 2025 Economics Question 34. It is one of the objective questions from the 2025 Gce Model Questions Vol1 Economics examination.

Difficulty level: Medium .

View More Gce Model Questions Vol1 2025 Economics Questions More Gce Model Questions Vol1 Practice Questions Back to Questions

Master the Exam!

You've seen a preview, but there are thousands more questions plus AI tutor to break down complex solutions.

Unlock Full Access Available for Android & Windows
Chat with Support