Question

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 monetary multiplier for the banking system will be:

Answer 1

The effective monetary multiplier that will be used in the banking system given the data provided would be 4. A money multiplier is defined as the output of the reserve dollars the bank produces. To find the multiplier, just take into consideration the amount of deposit and the reserve ratio.