The money multiplier is the multiple by which an initial change in depository institutions':
A) deposits can change actual reserves.
B) vault cash can change the money supply.
C) excess reserves can change the money supply.
D) reserve requirements can change excess reserves.

Question

Quizplus · Accepted Answer

The money multiplier refers to how an initial change in excess reserves within the banking system can lead to a proportionally larger change in the total money supply, due to the process of banks lending out their excess reserves, which then become deposits in other banks, creating more excess reserves and facilitating more loans.

The Money Multiplier Is the Multiple by Which an Initial