The money multiplier measures how many more dollars are in the economy than in reserves. The multiplier effect refers to the proportional amount of increase, or decrease, in final income that results from an injection, or withdrawal, of capital.The money multiplier is a phenomenon of creating money in the economy in the form of credit creation. Access study documents, get answers to your study questions, and connect with real tutors for ECON 101 : AP Macroeconomics at Georgia Virtual School. In this video I explain the reserve requirement, the money multiplier, and how money is created. The size of the multiplier depends on the strength of the economy at the time of the spending as well as where the money is spent. Money serves four main functions: as a medium of exchange, a unit of account, a store of value, and a standard for deferred payment. The purpose of this paper is to examine some of the assumptions that are frequently implicit in monetary models of the economic system. ∆M = 100 1−(1− f) = 100 f = 1000. Access study documents, get answers to your study questions, and connect with real tutors for ECON 201801_68 : Economics at Georgia Virtual School.