multiplier effect: will really test you

CFA Level I
#1

Lower reserve requirements: 1. decrease money supply 2. increase money supply 3. = lower multiplier effect 4. = higher multiplier effect 5. none of above 6. all of above 7. Choices 2 and 4 8. choices 1 and 3 9. choices 2 and 3

#2

2 4 7?

#3

let’s wait for everyone

#4
  1. lower reserves = more money to make for loans (increase supply) aannnd i guessed on higher multipler…
#5

7

#6

correct, it is 7 – GREAT job. Gone for dinner and to take a dump, will c everyone later.

#7

@ the others It’s no mutual exclusive answer, if 7 is right then 2 and 4 is right as well. :wink:

#8

can someone explain the multiplier

#9

When banks gets cash, they have more reserves. If the reserve ratio is 10%, they have to hold 10%, then can lend out 90% to other banks or people. That lets another bank take in more money, more reserves, more money to lend, multiplying money.

#10

beingthatguy Wrote: ------------------------------------------------------- > can someone explain the multiplier SIMPLY STATED, THE LOWER THE RESERVE REQ, THE MORE BANKS CAN LEND OUT TO BORROWERS, ETC. IT CREATES A DOMINO EFFECT OF MONEY BEING LENT OUT