{"id":50518,"date":"2019-09-25T02:00:20","date_gmt":"2019-09-25T06:00:20","guid":{"rendered":"https:\/\/quotulatiousness.ca\/blog\/?p=50518"},"modified":"2019-09-24T08:06:30","modified_gmt":"2019-09-24T12:06:30","slug":"the-money-multiplier","status":"publish","type":"post","link":"https:\/\/quotulatiousness.ca\/blog\/2019\/09\/25\/the-money-multiplier\/","title":{"rendered":"The Money Multiplier"},"content":{"rendered":"<p align=\"center\"><iframe loading=\"lazy\" width=\"853\" height=\"480\" src=\"https:\/\/www.youtube.com\/embed\/93_Va7I7Lgg\" frameborder=\"0\" allow=\"accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture\" allowfullscreen><\/iframe><\/p>\n<blockquote><p><strong>Marginal Revolution University<\/strong><br \/>\n<strong>Published on 25 Jul 2017<\/strong><\/p>\n<p>When you deposit money into a bank, do you know what happens to it? It doesn&#8217;t simply sit there. Banks are actually allowed to loan out up to 90% of their deposits. For every $10 that you deposit, only $1 is required to stay put.<\/p>\n<p>This practice is known as fractional reserve banking. Now, it&#8217;s fairly rare for a bank to only have 10% in reserves, and the number fluctuates. Since checkable deposits are part of the U.S. money supplies, fractional reserve banking, as you might have guessed, can have a big impact on these supplies.<\/p>\n<p>This is where the money multiplier comes into play. The money multiplier itself is straightforward: it equals 1 divided by the reserve ratio. If reserves are at 10%, the minimum amount required by the Fed, then the money multiplier is 10. So if a bank has $1 million in checkable deposits, it has $10 million to work with for stuff like loans and reserves.<\/p>\n<p>Now, typically, the money multiplier is more like 3, because banks can always hold more in reserves than the minimum 10%. When the money multiplier is higher, like during a boom, this gives the Fed more leverage to move M1 and M2 with a small change in reserves. But when the multiplier is lower, such as during a recession, the Fed has less leverage and must push harder to wield its indirect influence over M1 and M2.<\/p>\n<p>Next up, we&#8217;ll take a closer look at how the Fed controls the money supply and how that has changed since the Great Recession.<\/p><\/blockquote>\n<p><a href=\"https:\/\/quotulatiousness.ca\/blog\/wp-content\/uploads\/2019\/09\/Screenshot_2019-09-25-The-Money-Multiplier.png\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/quotulatiousness.ca\/blog\/wp-content\/uploads\/2019\/09\/Screenshot_2019-09-25-The-Money-Multiplier-480x270.png\" alt=\"\" width=\"480\" height=\"270\" class=\"aligncenter size-medium wp-image-51285\" srcset=\"https:\/\/quotulatiousness.ca\/blog\/wp-content\/uploads\/2019\/09\/Screenshot_2019-09-25-The-Money-Multiplier-480x270.png 480w, https:\/\/quotulatiousness.ca\/blog\/wp-content\/uploads\/2019\/09\/Screenshot_2019-09-25-The-Money-Multiplier-150x84.png 150w, https:\/\/quotulatiousness.ca\/blog\/wp-content\/uploads\/2019\/09\/Screenshot_2019-09-25-The-Money-Multiplier-768x432.png 768w, https:\/\/quotulatiousness.ca\/blog\/wp-content\/uploads\/2019\/09\/Screenshot_2019-09-25-The-Money-Multiplier-853x480.png 853w, https:\/\/quotulatiousness.ca\/blog\/wp-content\/uploads\/2019\/09\/Screenshot_2019-09-25-The-Money-Multiplier.png 930w\" sizes=\"auto, (max-width: 480px) 100vw, 480px\" \/><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Marginal Revolution University Published on 25 Jul 2017 When you deposit money into a bank, do you know what happens to it? It doesn&#8217;t simply sit there. Banks are actually allowed to loan out up to 90% of their deposits. For every $10 that you deposit, only $1 is required to stay put. This practice [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":35193,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[25,84,13],"tags":[436,164,1093],"class_list":["post-50518","post","type-post","status-publish","format-standard","hentry","category-economics","category-government","category-usa","tag-banking","tag-federalreserve","tag-macroeconomics"],"jetpack_featured_media_url":"https:\/\/quotulatiousness.ca\/blog\/wp-content\/uploads\/2016\/06\/favicon.png","jetpack_shortlink":"https:\/\/wp.me\/p2hpV6-d8O","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts\/50518","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/comments?post=50518"}],"version-history":[{"count":3,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts\/50518\/revisions"}],"predecessor-version":[{"id":51286,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts\/50518\/revisions\/51286"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/media\/35193"}],"wp:attachment":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/media?parent=50518"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/categories?post=50518"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/tags?post=50518"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}