EconixaECONOMICS FUNDAMENTALS

Interactive simulator

Money Multiplier Simulator

Banks keep a fraction of deposits as reserves and lend the rest, which becomes new deposits elsewhere. With a 10% reserve ratio, a 1,000initialdepositcansupportupto1,000 initial deposit can support up to 10,000 in total deposits (1/0.10). This simulator traces the rounds of deposit expansion and shows how a higher reserve ratio shrinks the money multiplier. In this release this page is powered by the closest available interactive widget; a dedicated widget for this topic is planned.

Spending Multiplier Calculator

k = 1 ÷ (1 − MPC), then ΔY = k × ΔG

Multiplier k = 5.000
Total GDP change ΔY = 500.00
Steps
  1. Marginal propensity to save: MPS = 1 − MPC = 1 − 0.80 = 0.20
  2. Multiplier: k = 1 ÷ MPS = 1 ÷ 0.20 = 5.000
  3. Total change: ΔY = k × ΔG = 5.000 × 100.00 = 500.00
  4. Round by round (each round respent at rate MPC): R1 = 100.00 → R2 = 80.00 → R3 = 64.00 → R4 = 51.20 → R5 = 40.96 → … converging to 500.00.
Why it works

The first round adds ΔG to GDP. A share MPC of that income is respent, adding MPC × ΔG, then MPC² × ΔG, and so on. This geometric series sums to ΔG × (1 + MPC + MPC² + …) = ΔG ÷ (1 − MPC).

How to use it

  1. Set the required reserve ratio.

  2. Enter the initial deposit.

  3. Watch deposits, loans, and reserves accumulate round by round.

  4. Raise the reserve ratio and see the total fall.

What you will learn

  • Explain how fractional-reserve banking creates money.
  • Compute the simple money multiplier from the reserve ratio.
  • State the assumptions behind the maximum expansion.

Model notes

The simple multiplier assumes banks lend all excess reserves and the public holds no cash — strong assumptions. Real money creation is driven by lending decisions and demand, not mechanically by reserves.