Final answer:
The money multiplier formula is 1 divided by the reserve requirement, and the maximum checkable deposit expansion is found by multiplying the initial increase in bank reserves by the money multiplier.
Step-by-step explanation:
The question pertains to the calculation of two related concepts in banking and economics: the money multiplier and maximum checkable deposit expansion. The money multiplier is a formula used to determine how much the money supply can increase through the lending activities of the banking system. To calculate the money multiplier, you use the reserve requirement ratio set by central banks. This ratio determines what percentage of deposits banks are required to hold in reserve and not lend out.
Money Multiplier Formula: The money multiplier is calculated as 1 divided by the reserve requirement. For example, if the reserve requirement is 10% (0.10), then the money multiplier would be 1 / 0.10, which equals 10. This means that for every dollar of reserves, up to $10 can be created in the banking system through lending practices.
The maximum checkable deposit expansion is determined by multiplying the initial increase in bank reserves by the money multiplier. This calculates the total amount by which deposits can increase throughout all banks as a result of the initial reserve increase.