Question

50 points !


what is credit creation multiplier??


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Answer 1

The multiplier effect is the expansion of a country's money supply that results from banks being able to lend. ... In other words, it is the money used to create more money and is calculated by dividing total bank deposits by the reserve requirement.

A central bank is the primary source of money supply in an economy through circulation of currency.

It ensures the availability of currency for meeting the transaction needs of an economy and facilitating various economic activities, such as production, distribution, and consumption.

However, for this purpose, the central bank needs to depend upon the reserves of commercial banks. These reserves of commercial banks are the secondary source of money supply in an economy. The most important function of a commercial bank is the creation of credit.

Answer 2

The multiplier effect is the expansion of a country's money supply that results from banks being able to lend. The size of the multiplier effect depends on the percentage of deposits that banks are required to hold as reserves.