Answer to Question #124832 in Macroeconomics for Muhammad farhan

Question

Define money multiplier?

Answer 1

Money multiplier is the amount of money generated by bank due to each dollar of bank reserves, bank reserves is the amount of deposits that the Federal Reserve requires banks to hold and not lend.

money multiplier can also be expressed as the ratio of deposits to reserves in the banking system i.e,

Money multiplier= (1/f) where f= reserved ratio