Money Multiplier
Calculate money multiplier effect. Formula: Money Multiplier = 1 / Reserve Ratio. Shows how much money supply increases from bank deposits.
Formula
Multiplier = 1 / RR. $1 deposit → $M circulated
10% reserve ratio
Inputs
- Reserve Ratio (%): 10
Multiplier = 1/0.1 = 10x; $1 deposit → $10 money supply
Frequently asked questions
How does multiplier work?
Banks lend deposits; borrowers deposit elsewhere; cycle repeats, expanding money supply