2.4. If the required reserve ratio for the Third National Bank is 10 percent, what is the monetary multiplier? Recall, to calculate you have to use the formula: Monetary Multiplier = 1=Required Reserve Ratio . The money multiplier is a key measure in banking that helps to predict the money supply that will be available to drive economic growth. As you can see from the formula, if the reserve requirement is 20%, the money multiplier will be I divided by 0.2, which is 5. We can then use the money multiplier multiplied by the excess reserves determine the maximum checkable-deposit creation that will be provided by the new money entering the system. 2.5. If the monetary multiplier is 4. what is the required reserve ratio? Describe how and identify by what amount the Third National Bank can create money in the economy . Recall that generally, bank creates money in a typical economy by making loans. The Fed sets the reserve requirement (the required reserve ratio) that directly affects the amount of money creation .

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