Principles of Macroeconomics / Unit 11 MAC 1016 short lesson, about 20 seconds
The Money Multiplier
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The idea
The multiplier is one divided by the required reserve ratio. It gives the largest change in deposits a given change in reserves can support. Some texts call it the deposit multiplier; the same number.
In practice
With a ratio of 20 percent, the multiplier is one divided by 0.2, which is five.
Where people slip
A higher ratio means a smaller multiplier.
Your place on the trail
Every lesson rests on earlier ones and opens later ones. Tap any to jump.
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