The money multiplier will rise as the banking system's propensity to lend rises.
Gain in the Money Multiplier.
- Loans are how banks make money. To increase interest earnings, a bank lends or invests its excess reserves.
- The money supply grows by more than one dollar for every $1 rise in the monetary base.
The money multiplier is the expansion of the money supply.
What does the term "money multiplier" mean?
- You can find out how much money banks make with each dollar of reserves by using the money multiplier. Finding the reserve ratio is the first step in obtaining the money multiplier.
The reserve ratio is just the reciprocal of the money multiplier.
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