If the reserve ratio is 4 percent then the money multiplier will be 0.25 or 25% by applying the formula 1 divided by the required reserve ratio.
The money multiplier refers to the ratio of commercial bank money to central bank money.
In other words, it refers to the maximum amount of commercial bank money that can be created by central bank money.
It is calculated by dividing 1 by the reserve ratio. So when 1 is divided by 4 percent, it will give 0.25 or 25%.
Therefore, the money multiplier is 0.25 or 25%.
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