Question

The people in an economy have $10 million in money. there is only one bank that all the people deposit their money in and it holds 10% of the deposits as reserves. what is the money multiplier in this economy?

Answer 1

The Money Multiplier of the said economy is ten (10).

The money multiplier is referred to be as the amount of money that banks create with the collection of each dollar of reserves. Reserves is defined as the amount of deposits that the Federal Reserve requires each bank to hold and not lend to other people. The money multiplier is considered to be the ratio of deposits to the reserves in the banking system.