If the reserve requirement is 20 percent, the monetary multiplier will be

1 answer

The monetary multiplier can be calculated using the formula:

\[ \text{Monetary Multiplier} = \frac{1}{\text{Reserve Requirement}} \]

In your case, if the reserve requirement is 20 percent (which can be expressed as a decimal of 0.20), the calculation will be:

\[ \text{Monetary Multiplier} = \frac{1}{0.20} = 5 \]

So, the monetary multiplier will be 5. This means that for every dollar of reserves, the banking system can create five dollars of money supply.