- How a Bank Works?
- A Bank's Income Statement
- Fractional Reserve Banking System
- Banking: Multiplier Effect and the Money Supply
- Banking: Introduction to Bank Notes
- Banking: How Bank Notes and Checks Work?
- Banking: How Banks Give Out Loans?
- Banking: Understanding Reserve Ratios
- Banking: Introduction to Leverage
Banking: Multiplier Effect and the Money Supply
The banking system as a whole can create an amount of money that is a multiple of deposits. The bank lending leads to new deposits in the banking system and a multiplier effect on the money supply. In a check-able deposits only system (no cash), the money supply equals bank reserves divided by the reserve ratio.
M = 1/ reserve requirement (RR) Currently: M = 1/0.1 = 10 M x bank reserves = money supply
The size of the money multiplier is reduced when funds are held as cash rather than as check-able deposits. The maximum deposit expansion possible (i.e., max growth in money supply) is excess reserves times the money multiplier.
This video how "money" is created in a fractional reserve banking system. It provides M0 and M1 definitions of the money supply.
Data Science in Finance: 9-Book Bundle
Master R and Python for financial data science with our comprehensive bundle of 9 ebooks.
What's Included:
- Getting Started with R
- R Programming for Data Science
- Data Visualization with R
- Financial Time Series Analysis with R
- Quantitative Trading Strategies with R
- Derivatives with R
- Credit Risk Modelling With R
- Python for Data Science
- Machine Learning in Finance using Python
Each book includes PDFs, explanations, instructions, data files, and R code for all examples.
Get the Bundle for $39 (Regular $57)Free Guides - Getting Started with R and Python
Enter your name and email address below and we will email you the guides for R programming and Python.