Question

Explain working of money multiplier. Explain working of money multiplier.

Answer 1

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Explain working of money multiplier. Explain working of money multiplier.


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The money multiplier is a key element of the fractional banking system. The bank holds a fraction of this deposit in reserves and then lends out the rest. This bank loan will, in turn, be re-deposited in banks allowing a further increase in bank lending and a further increase in the money supply.

Answer 2

Answer:

The money multiplier is the amount of money that banks generate with each dollar of reserves. Reserves is the amount of deposits that the Federal Reserve requires banks to hold and not lend. Banking reserves is the ratio of reserves to the total amount of deposits.

Explanation: