Theoretical Background: Money Multiplier Example: Reserve Requirement: 10% John Doe One deposits 1000E in Bank A Bank a deposits the required reserve in the central bank and lends the remain to john Doe Two, who deposits it in bank b and so on Bank As lending out 900e =1000≈09 Bank bs lending out 8|0E =900*0.9 Total money supply 10,000E =)(1000*0.90)Theoretical Background: Money Multiplier  Example: Reserve Requirement: 10%.  John Doe One deposits 1000€ in Bank A. Bank A deposits the Original Deposit in Bank A 1000€ required reserve in the central bank and lends the remain to John Doe Two, who deposits it in Bank B and so on. Bank A‘s lending out 900€ =1000*0.9 Bank B’s lending out 810€ = 900*0.9 ......... ......... ......... ......... ......... ......... ෍ ∞ Total mone y suppl y 10,000€ ൌ ෍ሺ1000 כ 0.9 nሻ nൌ0