What is a Deposit Multiplier?
Deposit multipliers are a strategy that is applied when it is necessary to identify the amount of money that is created in the money supply of a bank. The resulting figure helps to ensure that the bank is maintaining at least the minimum amount of funds on hand to comply with any government regulations regarding the operation of the institution. Calculating the deposit multiplier also helps the bank to know what surplus or excess funds are on hand to make loans to individuals and businesses. To arrive at the deposit multiplier, it is important to know the current status of bank reserves as well as the deposits on hand. By determining the ratio between the reserves and the deposits, it is possible to arrive at the current reserve ratio that will apply in the current economic situation. The deposit multiplier is normally considered to be roughly one-fourth of the calculated reserve ratio, although the exact ratio will fluctuate as economic conditions change. In the United States, regulat
