Economics Part B

Deposits multiplier

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The deposits multiplier sets the level of deposits which a bank is permitted to allow its customers to hold for each $1 of cash deposited in its safes. If, for example, the deposits multiplier is 3 and the bank has $100 million dollars in cash in the safe, the bank cannot hold more than $300 million in deposits.

The reserves ratio is always 1 divided by the deposits ratio. In this example, it would be 1/3.

Deposits multiplier540Deposits multiplier