The money multiplier links the monetary base to the quantity of money in the economy.

a. The size of the money multiplier depends on:

i. The reserve requirement.

ii. Banks’ desire to hold excess reserves.

iii. The public’s desire to hold currency.

b. While the central bank controls the level of the monetary base, it cannot control the money multiplier. Financial crises can trigger dramatic changes in the multiplier.

c. Changing payments technology has weakened the connection between the central bank’s balance sheet and the quantity of money.