Definition of Money multiplier:
Mathematical relationship between the monetary base and money supply of an economy. It explains the increase in the amount of cash in circulation generated by the banks ability to lend money out of their depositors funds. When a bank makes a loan, it creates money because the loan becomes a new deposit from which the borrower can withdraw cash to spend. This money-creating power is based on the fractional reserve system under which banks are required to keep at hand only a portion (between 10 to 15 percent, typically 12 percent) of the depositors funds. The rest may be converted into loans, thereby increasing the available cash by a factor that is a multiple of the initial deposit.
How to use Money multiplier in a sentence?
- Its nice and stuff man yeah really swell money multiplier s take the money and make it into more money from loans yeah.
- Certain projects can feel like they will be a money multiplier if they work out so you should try to do your best on them.
- The senior economist verbally illustrated the money multiplier effect to be useful in the economic calculation of the money supply.
Meaning of Money multiplier & Money multiplier Definition