In an? economy, the currency drain is 5 percent of deposits and the desired reserve ratio is 2 percent of deposits. If the central bank buys? $100,000 of securities on the open? market, calculate the money multiplier.
Answer:
Money Multiplier = 1+ drainage ratio / Drainage ratio + required reserve ratio
required reserve ratio = 2%
Drainage ratio = 5%
Money multiplier = 1+5% / (5% + 2%) = 1.05 / 7% = 15
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