Does the simple money multiplier decrease as the reserve ratio decreases?

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1292604

2026-03-04 08:35

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No, the simple money multiplier actually increases as the reserve ratio decreases. The money multiplier is calculated as 1 divided by the reserve ratio (MM = 1 / reserve ratio). Therefore, when the reserve ratio is lower, the denominator is smaller, resulting in a higher multiplier effect, allowing banks to create more money through lending.

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