Monetary multiplier = 1/rrr where m=maximum amount of new checkable deposits that can be created by given the value of r. r= the percentage of checkable deposits that must be that must be available at all times by the bank. The reserve ratio equals the commercial bank’s required reserves divided by the commercials banks checkable deposits liabilities. If bank A had 500.00 in checkable-deposits and the reserve ratio was 10% then it would have to keep 50,000 in reserve.
The monetary multiplier relies on the reserve ratio to create new money. If bank A received $1000 in checkable deposits and the rrr=.2 then they would
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