Assume that the value of the cash reserve ratio is 25%. What will be the value of money multiplier? 

Correct option is A

The correct answer is: (a) 4

Explanation:
The money multiplier is the reciprocal of the cash reserve ratio (CRR). The formula to calculate the money multiplier is:

$$\text{Money Multiplier} = \frac{1}{\text{Cash Reserve Ratio (CRR)}}$$​

Given that the CRR is 25%, or 0.25 in decimal form, the calculation would be:

$$\text{Money Multiplier} = \frac{1}{0.25} = 4$$​

Thus, the money multiplier is 4.

Information Booster:

• The money multiplier indicates the total amount of money that can be created in the economy through the process of lending by banks.

• If the CRR is higher, the money multiplier is smaller, limiting the amount of money banks can lend.

• A money multiplier of 4 means that for every unit of currency (like a deposit) held by the central bank, the banking system can potentially create four units of money through loans and other banking operations.

• If the CRR were 50% (or 0.50), the money multiplier would be 2, and if it were 10% (or 0.10), the money multiplier would be 10.