Money Multiplier = 1/?

Money Multiplier = 1/LRR

LRR = Legal Reserve Ratio

Explanation:-

Money Multiplier is the process by which commercial banks create credit, based upon the reserve ratio and initial deposits.

It is calculated as:-

Money Multiplier = 1/LLR

For example:

LRR is 10% or 0.1. Then,

Money Multiplier = 1/0.1 = 10 Times

It implies that for every unit of money kept as reserves, banks can create 10 units of money.

The value of the money multiplier is determined by LRR.

The higher the value of LRR, the lower is the value of the money multiplier

The lower the value of LRR, the Higher is the value of the money multiplier.