AP MacroeconomicsMoney & Monetary Policy
Money Multiplier
The money multiplier is the maximum amount the money supply can increase for each dollar of new bank reserves.
It equals the reciprocal of the required reserve ratio, assuming banks lend all excess reserves and the public holds no extra cash. A lower reserve ratio gives a larger multiplier. Real-world leakages make the actual multiplier smaller.
Formula / Example
Money multiplier = 1 ÷ required reserve ratio; Δmoney = multiplier × Δexcess reserves.
Interactive graph
Money Market →
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Study module
Monetary Policy →
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