Question

what is the simple money multipler formula? give a formula and the concept.

Answer 1

Money Multiplier=   

The total amount of money generated with each dollar of reserves is called as money multiplier.

For example suppose the bank has deposits of 1 million $. The depositors can can come in any time to withdraw their money, so to meet the demand of sudden withdrawels the Central bank has set a reserve ratio that the bank must hold as reserves in order to meet the demand of the withdrawels of money. If the reserve ratio is 10% the bank will hold 100,000$ as reserves and will lend 900,000 as loan and if the bank recieves more deposits, another 90% of that deposits will be given as loan to the borrowers. Suppose this leads to a money supply of 10 million$. The money multiplier will be equal to 10. The money multiplier shows how fast the bank lending will grow from its money .