Money Multiplier Calculator — Fractional Reserve Banking
The money multiplier shows how many dollars of broad money the banking system can create from $1 of reserves. Enter the required reserve ratio and an initial deposit to see the total deposits generated and a step-by-step view of how banks lend out successive rounds.
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$
Each $1 of reserves supports this many dollars of deposits (1 ÷ reserve ratio)
- 1
Reserve ratio as decimal
r = 10% ÷ 100 = 0.1 - 2
Money multiplier
1 ÷ 0.1 = 10Each dollar of reserves can theoretically support this many dollars of deposits.
How does this calculator work?
Money Multiplier = 1 ÷ Reserve Ratio. A 10% reserve requirement gives a multiplier of 10: a $1,000 deposit can create up to $10,000 in total deposits across the banking system through successive rounds of lending. Total deposits = Initial Deposit ÷ Reserve Ratio. The real multiplier is lower due to excess reserves and cash leakage.
Formula
How this is calculated
In a fractional reserve banking system, banks keep only a fraction r of every deposit in reserve and lend out the rest (1 − r). When that loan is deposited at another bank, the process repeats: the receiving bank keeps r of the new deposit and lends out (1 − r) again. This chain continues, creating a geometric series of deposits.
The total deposits equal D × (1 + (1−r) + (1−r)² + …) = D / r, where D is the initial deposit. The money multiplier 1/r tells you how many dollars of deposits the system generates per dollar of initial reserves. A 10% reserve ratio yields a multiplier of 10: $1,000 injected creates up to $10,000 in total deposits.
In practice the actual multiplier is lower than the theoretical value because: (1) banks hold excess reserves beyond the requirement; (2) households and businesses keep some cash outside the banking system; (3) different deposit types carry different reserve requirements. Since March 2020 the US Federal Reserve set the required reserve ratio to 0%, meaning the textbook multiplier is technically infinite — other regulatory constraints (capital requirements, liquidity ratios) now limit credit creation instead.
Frequently asked questions
It shows the maximum amount of deposits the banking system can support from a given quantity of reserves. A multiplier of 10 means every $1 of central bank money (reserves) can support up to $10 of commercial bank deposits. The real-world multiplier is lower because banks hold excess reserves and not all money stays in the banking system.
In March 2020 the Federal Reserve eliminated reserve requirements for all depository institutions to provide maximum flexibility during the pandemic. Banks are still constrained by capital adequacy ratios (Basel III), liquidity coverage ratios, and internal risk limits — so credit creation is not unlimited in practice.
The money multiplier (also called deposit multiplier) describes how the banking system amplifies reserves into deposits. The fiscal multiplier is a macroeconomic concept describing how government spending or tax changes ripple through GDP via changes in household income and consumption — a completely separate mechanism.
Also known as
TG we-Calculate Editorial Team. (2026). Money Multiplier Calculator — Fractional Reserve Banking [Online calculator]. TG we-Calculate. https://we-calculate.com/calculator/money-multiplier-calculator
TG we-Calculate Editorial Team. "Money Multiplier Calculator — Fractional Reserve Banking." TG we-Calculate. 2026. https://we-calculate.com/calculator/money-multiplier-calculator.
TG we-Calculate Editorial Team, "Money Multiplier Calculator — Fractional Reserve Banking," TG we-Calculate, 2026. [Online]. Available: https://we-calculate.com/calculator/money-multiplier-calculator
@misc{wecalculate_money_multiplier_calculator, title = {Money Multiplier Calculator — Fractional Reserve Banking}, author = {{TG we-Calculate Editorial Team}}, howpublished = {\url{https://we-calculate.com/calculator/money-multiplier-calculator}}, year = {2026}, note = {TG we-Calculate} }
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