LeoGlossary: Money Multiplier
This is a concept in monetary economics.
It is the ratio between commercial bank money and central bank money under the fractional reserve banking system. The latter is known as the monetary base.
Another way to think about this is the maximum amount of commercial bank money that can be created. This is obviously in relation to the central bank money held.
Under this system, banks are limited by legal reserve requirements as to the total amount of loans it can make is equal to a multiple of the amount of reserves.
The actual ratio of money to central bank money, also called the money multiplier, is lower because some funds are held by the non-bank public as currency. Also, banks may hold excess reserves, being reserves above the reserve requirement set by the central bank.
General:
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