If the required reserve ratio is 20 percent and commercial bankers decide to hold additional excess reserves equal to 5 percent of any newly acquired checkable deposits, then the effective monetarymultiplier for the bankingsystemwill be

Question

Quizplus · Accepted Answer

The effective monetary multiplier is calculated as 1 divided by the sum of the required reserve ratio and the excess reserve ratio. Here, it is 1 / (0.20 + 0.05) = 1 / 0.25 = 4.

If the Required Reserve Ratio Is 20 Percent and Commercial