Unformatted text preview: multiple of the original cash deposits. The extent to which such an expansion of credit can be made is called money multiplier. It is a reciprocal of the reserve requirement (which represents the tendency of people to withdraw cash). If the reserve requirement (RR) is 10 percent, the multiplier value is 10, and if RR = 8 percent, the multiplier value will be 12.5. Similarly, when RR=12 percent, the multiplier will be 8.33 Money Multiplier = 1/RR = 1/0.1 = 10, 1/0.08 = 12.6, 1/0.12 = 8.3. Money multiplier thus varies inversely with the value of RR....
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- Fall '10
- Fractional-reserve banking, money multiplier