If the desired reserve ratio is 15 percent and chartered bankers decide to hold additional excess reserves equal to 5 percent of any newly acquired demand deposits, then the relevant money multiplier for the banking system will be:

Question

Quizplus · Accepted Answer

The money multiplier is calculated as 1 / (required reserve ratio + excess reserve ratio). In this case, the required reserve ratio is 15% and the excess reserve ratio is 5%, so the money multiplier is 1 / (0.15 + 0.05) = 5.

If the Desired Reserve Ratio Is 15 Percent and Chartered