The multiple by which the commercial banking system can expand the supply of money is equal to the reciprocal of: Group of answer choices the MPS. its actual reserves. its excess reserves. the reserve ratio.

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22-07-2020
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The multiple by which the commercial banking system can expand the supply of money is equal to the reciprocal of: Group of answer choices the MPS. its actual reserves. its excess reserves. the reserve ratio.

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fichoh fichoh · Answer 1 · 2020-07-24T14:27:31+02:00

Answer: The reserve ratio

Explanation: The money multiplier of a commercial bank is the reciprocal of it's reserve ratio. The multiplier helps commercial banks to know how they can increase money supply. The reserve ratio is used to name a certain percentage of a commercial banks deposit which the central bank mandates it to keep as reserve.

Thus:

Multiplier = 1 / reserve ratio

For instance, if reserve ratio is 10%

Multiplier = 1 / 0.1

Multiplier = 10

Therefore, in this scenario, a commercial bank can increase its spending supply by a multiple of 10.