Money and Banking Money Multiplier
Money Creation
The money created by the Federal Reserve is the monetary
base, also known as high-powered money.
Banks create money by making loans. A bank loans or invests
its excess reserves to earn more interest.
A one-dollar increase in the monetary base causes the money
supply to increase by more than one dollar. The increase in the
money supply is the money multiplier.
1
, Money and Banking Money Multiplier
Money Supply
Money is either currency held by the public or bank deposits:
M = C + D.
2
Money Creation
The money created by the Federal Reserve is the monetary
base, also known as high-powered money.
Banks create money by making loans. A bank loans or invests
its excess reserves to earn more interest.
A one-dollar increase in the monetary base causes the money
supply to increase by more than one dollar. The increase in the
money supply is the money multiplier.
1
, Money and Banking Money Multiplier
Money Supply
Money is either currency held by the public or bank deposits:
M = C + D.
2
