Value of money multiplier if LRR is 40% :
Answer & explanation
Correct answer: option 1
The correct answer is option (1): 2.5
Legal reserve ratio refers to the minimum fraction of deposits which the banks are mandate to keep as cash themselves.
The money multiplier is calculated using the formula : $\frac{1}{LRR}$
MM = 1/40%
= (1*100)/40
= 100/40
= 2.5
So, the correct option is (1) 2.5.