BANKING AFFAIRS

Detailed explanation-1: -The deposit multiplier, also known as the deposit expansion multiplier, is the basic money supply creation process that is determined by the fractional reserve banking system.

Detailed explanation-2: -The money multiplier is a phenomenon of creating money in the economy in the form of credit creation. The money is created in the market based on the fractional reserve banking system. It is also sometimes called monetary multiplier or credit multiplier.

Detailed explanation-3: -The deposit multiplier represents the maximum amount of money a country could potentially create through bank lending. Think of it as a best-case scenario. The money multiplier, on the other hand, represents the actual change to the money supply created through lending.

Detailed explanation-4: -The money multiplier formula is also known as the credit multiplier formula and sometimes it is often used as a deposit multiplier formula as well which provides the base to it.

Detailed explanation-5: -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.