Enter the required reserve ratio into the calculator to determine the money multiplier of an economy or country.
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Money Multiplier Formula
The following formula is used to calculate a money multiplier.
MM = 1 / RR
- Where MM is the money multiplier
- RR is the required reserve ratio
To calculate the money multiplier, divide 1 by the required reserve ratio.
Money Multiplier Definition
A money multiplier is defined as the rate of credit creation of a federal reserve banking system.
Money Multiplier Example
How to calculate a money multiplier?
- First, determine the required reserves.
Calculate the required reserve ratio.
- Next, calculate the money multiplier.
Calculate the money multiplier using the formula above.
A money multiplier is the rate of credit creation due to the federal reserve banking system that requires a bank to hold a certain amount of deposits in reserve.
The required reserve is the number of deposits a bank is required to hold at any given point.