Money Multiplier Calculator
Enter the reserve ratio to get the money multiplier, and add an initial deposit to see the maximum money the banking system can create from it.
One tile of the full money and banking unit.
The course teaches money and banking interactively — drag the graphs, practice with feedback, and spaced reviews bring it back before you forget. Free.
Money multiplier
10
1 / 0.1 (reserve ratio = 10%)
An initial deposit of 1,000 dollars can support up to 10,000 dollars of deposits across the whole banking system.
Of that, up to 9,000 dollars is newly created through lending.
This is the maximum. It assumes banks lend out every spare dollar and the public re-deposits all of it — no cash held outside banks and no excess reserves.
What the course adds
Beyond this one page
The money-and-banking unit explains what money is, how fractional-reserve banking creates it, and how the money market sets interest rates — each on interactive graphs, with practice that finds your weak spots.
Spaced reviews
FSRS brings every concept back right before you'd forget. ~50% better retention than re-reading.
Per-concept mastery
Performance Factor Analysis tracks each sub-skill separately — you see which version of the idea is still wobbly.
Diagnostic placement
A short test skips you past what you already know. No re-learning the basics.
The formula
Money multiplier:
Maximum money creation:
The reserve ratio is the fraction of each deposit a bank holds back. Hold less, and banks lend more of every dollar, so the multiplier is larger.
Worked example
Suppose the reserve ratio is 10 percent and someone deposits 1,000 dollars in fresh cash.
dollars
Of that, 9,000 dollars is new money created by lending; the original 1,000 was already there.
This is the ceiling. If people hold some cash or banks keep extra reserves, the real expansion is smaller.
FAQ
- What is the money multiplier formula?
- The simple money multiplier equals . The reserve ratio is the fraction of deposits a bank must hold rather than lend. With a 10 percent reserve ratio, the multiplier is , so an initial deposit can support up to ten times its value in total deposits across the banking system.
- How do banks create money?
- Under fractional-reserve banking, a bank keeps only a fraction of each deposit on hand and lends the rest. The borrower spends the loan, the money is deposited at another bank, and that bank lends most of it again. Each round adds new deposits, so the banking system as a whole multiplies the original deposit into a much larger money supply. No new physical cash is printed — the money is created as deposits.
- What is the reserve ratio?
- The reserve ratio is the share of its deposits a bank holds as reserves instead of lending out. It can be a legal minimum set by the central bank or a level banks choose for safety. A lower reserve ratio lets banks lend more of each deposit, which raises the money multiplier; a higher ratio shrinks it.
- Why is the real-world money multiplier smaller than the formula?
- The simple formula assumes banks lend every spare dollar and the public re-deposits all of it. In reality people hold some cash outside banks, and banks often keep excess reserves above the required minimum. Both are leakages that interrupt the lending chain, so the actual expansion of the money supply is smaller than predicts.
- How does the money multiplier relate to monetary policy?
- Central banks influence the money supply partly through the multiplier. Lowering the reserve requirement raises the multiplier, letting each dollar of reserves support more lending. Open market operations inject or withdraw reserves, and the multiplier scales that initial change into a larger movement in the broad money supply.
For instructors
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Sends students to the full page with the worked example and related lessons.
Inlines just the interactive widget in your LMS — no nav, no footer, no signup wall.
Ready to go deeper than a calculator?
The Econ Academy macroeconomics course shows how banks create money, how the central bank steers it, and how the money market sets interest rates — with interactive graphs and spaced-repetition review.