The money multiplier is a concept in monetary economics that defines the ratio between the total money supply and the monetary base. It illustrates how the creation of bank deposits through lending can result in a total money supply that is significantly larger than the base amount of money issued by the central bank.
In simplified models, the multiplier is often calculated as the reciprocal of the reserve ratio. However, in reality, the multiplier is influenced by a complex interplay of factors, including the preferences of households, legal regulations, and the specific business policies of commercial banks. While central banks can influence these variables, they do not have absolute control over the final multiplier effect.