The Third National Bank has reserves of $20,000 and checkable deposits of $100,000. The reserve ratio is 20 percent. Households deposit $5000 in currency into the bank and that currency is added to reserves. 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 1 divided by 0.2, which is 5. We can then use the money multiplier multiplied by the excess reserves to determine the maximum checkable-deposit creation that will be provided by the new money entering the system.
The Third National Bank has reserves of $20,000 and checkable deposits of $100,000. The reserve ratio is 20 percent. Households deposit $5000 in currency into the bank and that currency is added to reserves.
If the
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 1 divided by 0.2, which is 5. We can then use the money multiplier multiplied by the
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