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What is Money Creation and Banking Multiplier about?
Money creation is the process by which banks increase the money supply through fractional reserve banking, where they lend out a portion of deposits. The money multiplier quantifies this effect, showing how an initial deposit can lead to a larger total money supply based on the reserve ratio. While this mechanism enhances liquidity, it also poses risks of credit over-expansion and economic instability, which central banks manage through regulation.
- Author
- timakajim
- Language
- EN