Money Multiplier

The money multiplier is a concept that shows how an initial amount of central bank money (like reserves) can lead to a larger total of bank deposits within the economy. It measures the potential increase in the money supply resulting from banks' lending activities. Essentially, when banks receive reserves, they can lend out most of those funds, and borrowers spend or deposit that money into other banks, which then lend again. The multiplier reflects this process, indicating how much the original reserves can expand the overall money supply through successive rounds of lending.