Deposit Multiplier

Deposit Multiplier
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.

Calculated as:

Deposit Multiplier

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.

For example, suppose that the required reserve ratio is 25%. This means that the deposit multiple is four. For banks, this means that for every $4 that is deposited, a total of $1 must be kept in reserves.


Investment dictionary. . 2012.

Игры ⚽ Поможем сделать НИР

Look at other dictionaries:

  • deposit multiplier — /dɪ pɒzɪt ˌmʌltɪplaɪə/ noun a factor by which a bank can increase deposits as a ratio of its reserves …   Dictionary of banking and finance

  • multiplier — The investment multiplier which quantifies the overall effects of investment spending on total income. The deposit multiplier which shows the effects of a change in bank deposits on the total amount of outstanding credit and the money supply.… …   Financial and business terms

  • Multiplier Effect — The expansion of a country s money supply that results from banks being able to lend. The size of the multiplier effect depends on the percentage of deposits that banks are required to hold as reserves. In other words, it is money used to create… …   Investment dictionary

  • Money multiplier — In monetary economics, a money multiplier is one of various closely related ratios of commercial bank money to central bank money under a fractional reserve banking system.[1] Most often, it measures the maximum amount of commercial bank money… …   Wikipedia

  • Dual currency deposit — In finance, a dual currency deposit (DCD) is a derivative instrument which combines a money market deposit with a currency option to provide a higher yield than that available for a standard deposit. There is a higher risk than with the latter… …   Wikipedia

  • credit multiplier — relation between cash deposited in a bank and the rate of reserve (shows the scope of the increase in money circulation after a deposit) …   English contemporary dictionary

  • мультипликатор — (применяется в финансах и инвестициях) (1) Инвестиционный мультипликатор (investment multiplier), или кейнсианский мультипликатор (Keynesian multiplier), отражает влияние капиталовложений на совокупный доход. Например, инвестиции в небольшую… …   Финансово-инвестиционный толковый словарь

  • Full-reserve banking — Public finance Full reserve banking is the banking practice in which the full amount of each depositor s funds are available in reserve at the bank when each depositor had the legal right to withdraw them. Full reserve banking was practiced… …   Wikipedia

  • Fractional reserve banking — Banking A series on Financial services …   Wikipedia

  • Monetary policy of the United States — Banking in the United States Monetary policy The Federal Reserve System Regulation Lending Credit card Deposit accounts Savings account Checking account Money market account Certificate of deposit …   Wikipedia

Share the article and excerpts

Direct link
… Do a right-click on the link above
and select “Copy Link”