Final answer:
The monetary multiplier refers to the process through which banks create checkable deposit money by magnifying excess reserves. The formula for calculating the monetary multiplier is 1/reserve ratio, and it determines how much checkable deposit money can be created. A higher reserve ratio results in a smaller monetary multiplier.
Step-by-step explanation:
The correct answer is D. monetary multiplier. The monetary multiplier refers to the process through which banks create checkable deposit money. It magnifies excess reserves into a larger creation of checkable deposit money.
The formula for calculating the monetary multiplier is 1/reserve ratio, where the reserve ratio is the fraction of deposits that the bank wishes to hold as reserves. The higher the reserve ratio, the smaller the monetary multiplier, and vice versa.
For example, if the reserve ratio is 10%, the monetary multiplier would be 10 (1/0.1 = 10). This means that for every additional dollar of excess reserves, the banking system can generate $10 of checkable deposit money.