This effect is what actually creates most of the money in the world. Every nation has much more money in circulation than actually printed bank notes. This comes about because of fractional reserve banking. Think about how much money you have in the bank. Now the bank is only required to keep a certain amount on hand either by good sense or the law. So let's say they loan out 90% of the money. That money goes to people who buy and invest with it and it in turn goes to the people they bough stuff from and who are likely to put at least some part of it in a bank. That will loan the money out again.

Example: You deposit one million samolions in the First Bank of Freedonia. You now both have and don't have this money as you can use it at any time, but while it is in the bank it is also working. Part of it, 900,000 to be precise, has been loaned out to Bob who buys equipment for a new business. They money Bob spends goes to various suppliers, contractors, and other businessmen who deposit the money right back in a bank. For this example the First Bank of Freedonia. That now has 1,900,000 on deposit and is going to make another loan in the amount of 810,000 samolions. And on it goes.

So the money multiplier is how much the money gets circulate around through the hands of private individuals and banks. But it is not infinite unless the banks are keeping no money on hand (Very stupid, someone ought to make a law! And they have in most countries.) and nobody keeps any cash (not likely).

So how much is the currency multiplied? Well if you go and do the math the absolute limit is one divided by the percentage kept in reserve (r) at the bank. Or,

M = 1 / r

So this means if the reserves of all the banks of the land is 10% then the amount of money in circulation could be multiplied ten times over. Though due to the speed of transactions and some people not putting money in the bank it will probably be somewhat less and there are very complex calculations to figure out more exactly using various economic signs, but you don't really need to know them.

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