What refers to the ability of a bank deposit to be loaned out multiple times its value?

The concept being referred to is known as the credit multiplier, which describes how banks can create additional money through lending. When a bank receives deposits, it is required to keep a fraction of those deposits as reserves, as dictated by the reserve requirement set by regulatory bodies. The remaining portion can be loaned out to borrowers.

This process leads to a multiplication effect: when a bank lends out money, it allows the borrower to spend that money, which then gets deposited in another bank, enabling that bank to lend out a fraction of that new deposit as well. This cycle continues, leading to the potential for the total amount of loans to exceed the original deposits made. The credit multiplier quantifies this phenomenon, illustrating how the banking system can amplify the money supply based on the initial amount of deposits and the reserve requirement.

This concept is foundational in understanding how monetary policy works and the role banks play in the economy by creating money through lending activities.