Definition
- Money multiplier
- The money multiplier is the number of pounds of deposits the banking system creates from each pound of reserves, and it equals one divided by the reserve requirement.
- Not to be confused with: Reserve requirement
- The reserve requirement is the proportion of its deposits that a bank must hold rather than lend.
Test yourself
What is the difference between money multiplier and reserve requirement?
The reserve requirement is the share held back; the multiplier is one divided by it.