Question

Difference between money multiplier and deposit multiplier

Answer 1

The deposit multiplier, also known as the deposit expansion multiplier, is the basic money supply creation process that is determined by the fractional reserve banking system. ... Thedeposit multiplier is then the ratio of the checkable deposits amount to the reserve amount...

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Answer 2

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The Money Multiplier
The money multiplier reflects the amplified change in the money supply that ultimately results from the injection into the banking system of additional reserves. However, the money multiplier differs from the more basic deposit multiplier because banks tend to keep excess reserves, and bank customers tend to convert some portion of checkable deposits to savings deposits or cash.

The Deposit Multiplier
The deposit multiplier, also known as the deposit expansion multiplier, is the basic money supply creation process that is determined by the fractional reserve banking system. Banks create what are termed checkable deposits as they loan out their reserves. The bank's reserve requirement ratio determines how much money is available to loan out and therefore the amount of these created deposits. The deposit multiplier is then the ratio of the checkable deposits amount to the reserve amount. The deposit multiplier is the inverse of the reserve requirement ratio.


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