Given a 25 percent reserve ratio, assume the commercial banking system is loaned up. Now assume the reserve ratio is reduced to 20 percent. As a result of this reduction,

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When the reserve ratio is reduced from 25 percent to 20 percent, each dollar of reserves can now support $5 of checkable deposits, as the money multiplier is the reciprocal of the reserve ratio (1/0.20 = 5). This means that for every dollar held in reserve, banks can lend out $5, increasing the potential for checkable deposits in the banking system.

Given a 25 Percent Reserve Ratio, Assume the Commercial Banking