Consider the following statements money multiplier effect 1 The multiplier effect is the expansion o...........

Economic Affairs Money Supply and Monetary Policy

Consider the following statements money multiplier effect

1. The multiplier effect is the expansion of a country's money supply that results from banks being able to lend.

2. The size of the multiplier effect depends on the percentage of deposits that banks are required to hold as reserves.

3. It is the money used to create more money and is calculated by dividing total bank deposits by the reserve requirement.

Which of the statements given above is/are correct?

1, 2 and 3

1 and 3 only

2 only

2 and 3 only

• The multiplier effect is the expansion of a country's money supply that results from banks being able to lend.

• The size of the multiplier effect depends on the percentage of deposits that banks are required to hold as reserves.( The Reserve Deposit Ratio)

• In other words, it is the money used to create more money and is calculated by dividing total bank deposits by the reserve requirement.

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