Credit Multiplier

Credit Multiplier Assignment Help

Home / Macroeconomics Assignment Help / Credit Multiplier

Credit Multiplier

Credit refers to the derivative deposits. Credit multiplier is the ratio of change in total credit (derivative deposits) due to a given change in primary deposits. The credit multiplier


Where C is the credit multiplier, ΔDD is change in derivative deposits and ΔDP is change in initial primary deposits.

Thus, if with the addition of primary deposits of $1000, the banks create total deposits of $5000, then the credit created or the derivative deposits are $5000 - $1000 = $4000,. The ratio of derivative deposits to the primary deposits (which in this case is 4) is called credit multiplier. The formula to find the credit multiplier is

C = 1-x/x


Submit Homework

Submit your homework for a free quote