Question

How do you understand by Federal multiple depositecreation ? Explain with a simple model.

Answer 1

The deposit multiplier, also referred to as the deposit expansion multiplier, is a function that describes the amount of money a bank creates in additional money supply through the process of lending the available capital it has in excess of the bank's reserve requirement. Simply put, it's the ratio of bank reserves to the bank deposits.


multiple deposit creation: The process whereby, when the: Fed supplies the banking system with $1 of additional reserves, deposits increase by a multiple of this amount.

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