Suppose the Bank of Canada suggests banks should have a reserve ratio of 20 percent.If banks are conservative and choose not to loan all of their excess reserves, the real-world deposit multiplier is

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The real-world deposit multiplier is calculated using the formula 1/RR, where RR is the reserve ratio. In this case, the reserve ratio is 20%, so the deposit multiplier would be 1/0.2 = 5. However, this assumes that banks loan out all of their excess reserves. If banks are conservative and choose not to loan out all of their excess reserves, then the actual deposit multiplier will be less than 5. Therefore, the best choice is A) less than 5.

Suppose the Bank of Canada Suggests Banks Should Have a Reserve