how does the deposit multiplier relate to the money supply 
the deposit multiplier is an indicator of how much a bank s lending activity can add to the money supply essentially banks multiply deposits throughout the country by lending money to borrowers who then deposit the money in their own bank accounts the deposit multiplier represents the amount of money that can be created based on a single unit held in reserve the higher the fed s reserve requirement the smaller the deposit multiplier and the less of an increase in deposits created through lending 