Deposit Multiplier

Categories: Econ, Banking

The ratio of a bank's reserves to its demand deposits.

A demand deposit is the funds that can be withdrawn at any time from the bank and with no notice (think: checking and savings accounts). The deposit multiplier determines how much in demand deposits the bank can hold for each $1 in its reserves.

Say a bank's deposit multiplier is 8. This means the bank can hold $8 in demand deposits for every $1 in its vault reserves.

The deposit multiplier is the inverse of the required reserve ratio. Very different from the rabbit pregnancy multiplier, which is way cuter.

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