WHAT’S WRONG WITH THE TEXTBOOK MULTIPLIER MODEL?

Most of the economics or finance students and graduates get taught about something called the ‘money multiplier’. The money multiplier story says that banks actually create much of the money in the economy.

The fact is that the multiplier model that is still taught in many universities is completely wrong. It’s an inaccurate and outdated way of describing how the banking system works. In fact, banks in the UK haven’t worked like this for years.