Money Multiplier
The money multiplier is an economic concept that describes the amount of money that banks create when they receive deposits from customers. It is calculated by dividing the total amount of money in the economy by the amount of money held in reserve by the central bank. The money multiplier is an important tool for understanding how the banking system works and how it affects the economy.
History of the Money Multiplier
The concept of the money multiplier was first developed by economist Irving Fisher in the early 1900s. Fisher argued that the money supply in an economy is determined by the amount of money held in reserve by the central bank. He argued that when the central bank increases the amount of money held in reserve, the money supply in the economy increases as well. This concept has since been adopted by many economists and is used to explain how the banking system works and how it affects the economy.
Money Multiplier Table
| Reserve Ratio | Money Multiplier |
|---|---|
| 0.1 | 10 |
| 0.2 | 5 |
| 0.3 | 3.33 |
| 0.4 | 2.5 |
| 0.5 | 2 |
Summary
The money multiplier is an important economic concept that explains how the banking system works and how it affects the economy. It is calculated by dividing the total amount of money in the economy by the amount of money held in reserve by the central bank. For more information about the money multiplier, you can visit websites such as Investopedia, The Balance, and the Federal Reserve Bank of St. Louis.
See Also
- Fractional Reserve Banking
- Money Supply
- Central Bank
- Interest Rates
- Monetary Policy
- Inflation
- Deflation
- Liquidity
- Credit Creation
- Reserve Ratio
