The money multiplier equals:.
A. 1/R, where R represents the quantity of reserves in the economy.
B. 1/R, where R represents the reserve ratio for all banks in the economy.
C. 1/(1+R), where R represents the quantity of reserves in the economy.
D. 1/(1+R), where R represents the reserve ratio for all banks in the economy.

B. 1/R, where R represents the reserve ratio for all banks in the economy.

Explanation:

The Money Multiplier is the money that Banks generate given a certain RESERVE REQUIREMENT/RATIO.

A Reserve Requirement is money that the Central Bank requires that Banks do not loan out and instead keep in reserve.

For example, if the reserve rate is 10% and a bank has $10 they can only loan out $9.

Assuming they loan out $9 then they created $19 in the economy because their customers still own the original $10 but now they have also given loans of $9. The people who take the loans then deposit it in another bank. That bank would keep $0.90 in reserve and loan out $8.10 meaning that $27.10 now exists in the economy.

The process goes on and on until it gets to $100.

A simpler way to get to the final figure is to divide 1 by the reserve requirement = 1/r which is the money multiplier.

Using the above example, that would be 1/0.1 which is 10.

Multiplying this 10 by the initial deposit of $10 will give you that same $100.

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