What is the difference between money multiplier and deposit multiplier?
Difference is simple – “deposit multiplier” measures real money supply created by depositing money in bank, but “money multiplier” measures potential money supply created by whole banking system in economy after emission by central bank. Though conceptually and mathematically both are almost the same. For instance if reserve requirement is 10%, then money multiplier is = 1/10% = 1/0.1 = 10 MM = 1/RR MM – money multiplier RR – reserve requirement If someone deposits $20 on bank account then bank lends 90% of that amount further, thus deposit multiplier is 1/RR = 1/0.1=10 or directly change in money supply: ΔMS = (ΔD/0.1) – ΔD = $20/0.1 – $20 = $200-$20=+$180 (assuming no currency drains) Actually your formulas are not precisely right even for theoretical analysis, because currency drains are not taken into account. All in all there is no any difference, except emphasizing how process of creation goes (who initiates it).
