The amount of money that the banking system creates through the practice of fractional reserve banking is a function of 1 divided by the reserve requirement, a quantity known as the money multiplier. In the case just examined, the money multiplier is 1/0.10 = 10. This equation implies that the smaller the reserve requirement, the greater the money multiplier effect.
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e of reserve banking, was the catalyst for €1,000 worth of economic transactions. That is not to say that economic growth would be zero without this process, but instead that it can be an important component in economic activity. <span>The amount of money that the banking system creates through the practice of fractional reserve banking is a function of 1 divided by the reserve requirement, a quantity known as the money multiplier .3 In the case just examined, the money multiplier is 1/0.10 = 10. Equation 1 implies that the smaller the reserve requirement, the greater the money multiplier effect. In our simplistic example, we assumed that the banks themselves set their own reserve requirements. However, in some economies, the central bank sets the reserve requiremen

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