What is money multiplier? How will you determine its value? What ratios play an important role in the determination of the value of money multiplier?
Money multiplier measures the amount of money that the banks are able to create in the form of deposits with every unit of money, it keeps in reserves.
It is calculated as:
Money Multiplier = 1/Legal Reserve Ratio
Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) play an important role in the determination of money multiplier.