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Deposit multiplier
       
 
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Deposit multiplier

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Deposit multiplier
A value representing the ratio of bank reserves to bank deposits.
    
If bank reserves increase, bank deposits may increase by the amount of the increase times the Deposit multiplier.
    
It is a function that describes the amount of money created in a bank's Money Supply. This money is created by lending money that is in excess of its required reserve to borrowers. The Federal Reserve and other central banks require that banks must hold a minimum amount (required reserve) of money in their reserves in order to fulfill withdrawal requests from depositors. Banks are then allowed to lend out any excess to borrowers (such as for mortgages), while the liability incurred as a result of depositors is still on the books.
Posted by  Henley & Partners Group Holdings Ltd, marcus evans (Europe) Ltd
 
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