The _____ measures the maximum amount the money supply can increase when new deposits enter the system.

Question

Quizplus · Accepted Answer

The money multiplier represents the maximum amount the money supply can increase based on new deposits entering the banking system. It is calculated by dividing the reserve requirement into 1. For example, if the reserve requirement is 10%, then the money multiplier would be 1/0.10 = 10. This means that for every $1 deposited, the money supply can increase up to $10 based on the lending activities of banks.

The _____ Measures the Maximum Amount the Money Supply Can