Explanation:
The monetary multiplier or money multiplier, is the process that allows banks to multiply money from an initial amount of money.
This is because banks are only required to keep a minimum level of money in their reserves. This minimum is called the cash ratio and is determined by each central bank.
This facilitates the creation of money. That is, it allows credit to flow. When credit flows the economy advances and grows. While it is true, of course, that if credit flows too quickly and without control, the economy may overheat. That is, bubbles could be created.
Formula of the monetary multiplier
The formula commonly used in macroeconomics to calculate the monetary multiplier (m) is the inverse of the cash ratio
