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Multiplier effect
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Asked 5/9/2012 11:49:18 AM
Updated 9/6/2018 12:33:37 PM
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Flagged by emdjay23 [9/6/2018 12:33:37 PM]
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User: Multiplier effect

Weegy: The multiplier effect depends on the set reserve requirement. So, to calculate the impact of the multiplier effect on the money supply, we start with the amount banks initially take in through deposits and divide this by the reserve ratio. [ If, for example, the reserve requirement is 20%, for every $100 a customer deposits into a bank, $20 must be kept in reserve. However, the remaining $80 can be loaned out to other bank customers. This $80 is then deposited by these customers into another bank, which in turn must also keep 20%, or $16, in reserve but can lend out the remaining $64. This cycle continues - as more people deposit money and more banks continue lending it - until finally the $100 initially deposited creates a total of $500 ($100 / 0.2) in deposits. This creation of deposits is the multiplier effect. Read more: ]
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Question
Asked 5/9/2012 11:49:18 AM
Updated 9/6/2018 12:33:37 PM
1 Answer/Comment
This conversation has been flagged as incorrect.
Flagged by emdjay23 [9/6/2018 12:33:37 PM]
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The multiplier effect refers to the increase in final income arising from any new injection of spending.
Added 9/6/2018 12:33:36 PM
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