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If the reserve requirement is 20% and commercial bankers decide to hold additional excess reserves equal to 5% of any newly acquired checkable deposits, then the effective monetary multiplier for the banking system will be

Answer :

Answer: 4

Explanation:

Based on the information provided in the question, the effective monetary multiplier for the banking system will be calculated as:

= 1/Reserve ratio

= 1 / (20 + 5%)

=1/(0.20+0.05)

= 1/0.25

= 4

Therefore, the effective monetary multiplier for the banking system is 4.

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