Respuesta :
When it comes to lending, this does not operate equally on all financial entities. When we look at an individual commercial bank, we see that this can only lend an amount equal to its excess reserves. This is because the bank cannot rely on the banking system as a whole. Instead, it has to rely only on its own reserves, as this is the risk that the bank is prepared to face. When the commercial banking system in general lends money, it can lend by a multiple of its excess reserves. This is because it can rely on the banking system as a whole, and the risk is diminished by its access to the reserves of several different banks.
The monetary multiplier is the multiple of the excess reserves by which the banking system can expand deposits and thus money supply. This means that the monetary multiplier can determine the amount that the banking system can safely loan. This is the reciprocal of the required reserve ratio, which states the amount of reserves that a bank should hold.
Answer:
All financial institutions does not have the same lending system, they operate differently according to the amount of founds available in its reserve, looking at the case between the single commercial bank and the commercial banking, we can see that the single commercial bank can only lend money that is only equal to the one in its excess reserve, this is so because the risk they are willing to take base on the capacity of the excess reserve as they only depend on these, they depend on their excess reserve only and not on the financial system. While in the case of the commercial banking system, it can give loan or lend money which is multiple of it excess reserve because they not only depend on their excess reserve, but also depend on the excess of the financial system.
The money multiplier is the amount of money that banks are able to generate with each amount of dollar of in it excess reserves. The monetary multiplier is the ratio of deposits to the excess reserves in the banking system. It tells the commercial bank the available excess reserves it has that is loanable.
