Skip to content

CA Foundation · Business Economics · Money Market

Using the money multiplier m = (1 + c)/(c + r), where c is the currency-deposit ratio and r is the reserve-deposit ratio, find m when c = 0.2 and r = 0.1.

Substituting c = 0.2 and r = 0.1 into m = (1 + c)/(c + r) gives 1.2 divided by 0.3, which equals 4. The multiplier is 4 because leakage into public currency holdings reduces it below the simple deposit multiplier of 10.

  1. A4Correct
  2. B5
  3. C3
  4. D6

Explanation

m = (1 + 0.2)/(0.2 + 0.1) = 1.2/0.3 = 4. Ignoring currency (using 1/r) gives 10, and (1/(c+r)) gives 3.33; neither matches. Check: 4 × 0.3 = 1.2, which confirms.

Did you get it right without looking?

One question tells you little. A timed set on Money Market shows your real accuracy, how long you take and where you lose marks.

Practise Money MarketFree diagnostic mock

More Money Market questions