Value of money multiplier if LRR is 40% :

2.5

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.