Understanding the Money Multiplier

What is the primary role of the money multiplier in an economy?

• To regulate the stock market

• To amplify the effect of monetary policy on the money supply

• To determine the value of currency

• To increase the interest rates

If the Federal Reserve buys $80 worth of bonds with a reserve requirement of 10%, what will be the change in the money supply?

• $160

• $800

• $8

• $80

When the Federal Reserve sells $100 worth of bonds and the reserve requirement is 20%, what is the expected change in the money supply?

• $50 increase

• $200 decrease

• $100 increase

• $500 decrease

How does an increase in reserve requirements affect the money multiplier?

• It increases the multiplier

• It decreases the multiplier

• It doubles the multiplier

• It has no effect on the multiplier

If you deposit $50 in a bank with a 20% reserve requirement, what is the net change in the money supply?

• $200

• $250

• $50

• $100