How Do You Understand The Multiplier Effect?
The Multiplier Affect is a term relating to money introduced into the economy by the Federal Reserve System. The multiplier effect is a term relating to monies introduced into the economy by the Federal Reserve System. This term defines the process by which a base amount of money introduced into the banking system, will have a hold value that continues to increase exponentially. First, the FED-open-market committee, (the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and a rotation of four of the 11 other district bank presidents) make a decision to buy or sell bonds or else make purchases. As a simple example, say $100.00 is printed and spent through the method of purchase by the FED-open-market committee. The entire $100 is placed in the seller’s bank account and the bank now has $100.00 in new reserves. If the reserve requirements instruct that 20% be kept, then the bank has the option of lending out the other $80.00. In the first ste
