Answer:
8
Explanation:
the money multiplier = 1 / required reserve ratio = 1 / 0.125 = 8
The money multiplier refers to the capacity of the banking system to "create" money, e.g. John deposits $1,000 dollars in bank A. Then bank A lends $875 to Frank which buys a bike from Sarah. Then Sarah deposits the $875 in bank B, which in turn borrows $765.63 to Anne. Anne pays her rent to Adam, who deposits the money in bank C and then bank C lends $669.92 to Joe, and ...
