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Deposit Multiplier

Deposit Multiplier

The deposit multiplier is the maximum amount of money that a bank can create for each unit of money it holds in reserves. The deposit multiplier involves the percentage of the amount on deposit at the bank that can be loaned. That percentage normally is determined by the reserve requirement set by the Federal Reserve.

The deposit multiplier is key to maintaining an economy's basic money supply. It's a component of the fractional reserve banking system, which is now common to banks in most nations around the world.

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