A money multiplier of 8 means that an increase in liquid assets of £1 could cause an increase in deposits of _____ if there were no leakage out of the system.

Question

Quizplus · Accepted Answer

The money multiplier of 8 implies that for every £1 increase in liquid assets, there can be an £8 increase in deposits, assuming no leakages in the system. This is because the money multiplier effect allows banks to lend out a portion of deposits, which then gets redeposited and lent out again, amplifying the initial increase in liquid assets.

A Money Multiplier of 8 Means That an Increase in Liquid