What Is The Money Multiplier Effect, How The Money Multiplier Effect Is Calculated, How The Economy Is Affected By The Money Multiplier Effect In The Economy, And The Problems With The Money Multiplier Effect In The Economy

Download or read book What Is The Money Multiplier Effect, How The Money Multiplier Effect Is Calculated, How The Economy Is Affected By The Money Multiplier Effect In The Economy, And The Problems With The Money Multiplier Effect In The Economy written by Dr. Harrison Sachs and published by The Epic Books Of Dr. Harrison Sachs. This book was released on 2023-01-13 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: This essay sheds light on what is the money multiplier effect, elucidates how the money multiplier effect is calculated, explicates how the economy is affected by the money multiplier effect in the economy, and expounds upon the problems with the money multiplier effect in the economy. The money multiplier effect is pervasive in the economy. “The money multiplier effect reflects the amplified change in the money supply that ultimately results from the injection into the banking system of additional reserves. The deposit multiplier provides the basis for the money multiplier effect, but the money multiplier value is ultimately less, due to excess reserves, savings, and conversions to cash by consumers”. Banks are able to lend out the vast majority of the fiat currency that they receive from the cash deposits of customers and companies. Cash deposits are not limited to being in the form of tangible fiat currency notes, but can also encompass checks and money transfers. As of September of 2024, the reserve requirement ratio is 0% which allows banks to have autonomy to lend out all the fiat currency that they receive from the cash deposits of customers and companies if they choose to do so. By issuing loans, credit cards, and lines of credit, banks can generate a substantial amount of interest revenue. As of September of 2024, the highest annual percentage rate on a credit card is 36%. As of September of 2024, the highest mortgage interest rate is 6.73% on a 30-year jumbo mortgage loan. As of September of 2024, the highest personal loan annual percentage rate is 36%. The lower the credit score a person, has the higher likelihood there is that he will be disqualified for a lower interest rate on a loan, credit card, and line of credit. A person can increase his probability to qualify for a lower interest rate on a loan, credit card, and line of credit by having a super-prime credit score of 720 or higher. By having a lower interest rate on a loan, credit card, and line of credit, a person can wind up paying significantly less in recurring interest fees than a person who has a high interest rate on a loan, credit card, and line of credit. The money multiplier effect is able to determine the supply of fiat currency in the economy. The money multiplier effect also has bearing on impacting monetary policy. It is eminently undesirable in all facets to be laden with debt. It can be eminently expensive for an indebted person to service debts by making monthly payments towards outstanding debt balances. When an indebted person pays recurring late fees and recurring interest fees on outstanding debts, then he does not receive anything for doing so. A formula can be utilized to calculate the money multiplier effect. The formula for the money multiplier effect encompasses the following: “the money multiplier effect = change in income/change in spending”. When people who work real private sector jobs based on voluntary demand earn more fiat currency, they then have a proclivity to expend it on purchasing additional products and procuring additional services. When people who work real private sector jobs based on voluntary demand earn more fiat currency, then their capability to stimulate the economy is further augmented. When people who work real private sector jobs based on voluntary demand expend fiat currency on purchasing additional products and procuring additional services, then this can elicit a ripple effect in the economy. When people who work real private sector jobs based on voluntary demand expend fiat currency on purchasing additional products and procuring additional services, then the companies who they purchase additional products from and procure additional services from have additional fiat currency to expend in the economy. By amplifying their revenue, companies are able to have additional fiat currency to expend on research and develop effects and on pursuing expansion opportunities. The economy is affected by the money multiplier effect in a plethora of disparate ways. The money multiplier effect is able to amplify the supply of fiat currency in the economy without it resulting in a significant increase in economic output. Most people who receive loans, credit cards, and lines of credit do not work in entrepreneurial capacities. The money multiplier effect is able to amplify the supply of fiat currency in the economy and thereby render an economy more susceptible to succumbing to inflation.