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Money Multiplier & Deposit creation Help please watch

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    Hi guys,

    I'm finding it hard to understand the Money multiplier and deposit creation formulas in my Lipsey & Crystal textbook. Could someone please help explain.

    For instance, one of the test yourself questions is:

    -If the public's desired cash ratio is 20 per cent and the banks' desired reserve ratio is 10 per cent, what is the size of the money multiplier?

    Thanks, will give reps.
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    I think i've worked it out, is it just simply 1.20/0.30 = 4?

    If this is right I still don't quite understand why that is the caluclation- an explanation would be greatly appreciated.
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    That's correct.
    m=(cr+1)/(cr+rr)
 
 
 
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