Question

“The money multiplier is necessarily greater than $1.$” Is this statement true, false, or uncertain? Explain your answer

Short answer

The statement is true.

Step-by-step solution

concept introduction.

The statement is true.

The simple money multiplier is calculated as:

$\mathrm{m}=1\mathrm{rrm}=1\mathrm{rr}$

Were $rrrr$is the required reserve ratio.

Explanation

The simple money multiplier is calculated as:

$\mathrm{m}=1\mathrm{rrm}=1\mathrm{rr}$

Were $rrrr$is the required reserve ratio.

Explanation

The required reserve ratio is the percentage of the total reserves that banks deposit with the Central Bank. Because the required reserve ratio is less than$11$, then the money multiplier is necessarily greater than $1$.

Final Answer

The money multiplier is necessarily greater than 1.