Which economic term is associated with the concept that the required reserve ratio can affect money creation?

The deposit multiplier is the concept that directly relates to how the required reserve ratio can influence money creation in the banking system. When banks receive deposits, they are required to keep a certain percentage of those deposits as reserves, as dictated by the required reserve ratio. The deposit multiplier illustrates how an initial deposit can lead to a greater total amount of money in the economy because banks can lend out a portion of their deposits while still maintaining the required reserves.

To elaborate, the formula for the deposit multiplier is calculated as the inverse of the required reserve ratio. For instance, if the required reserve ratio is 10%, the deposit multiplier would be 1 divided by 0.10, equaling 10. This means that for every dollar deposited, up to 10 dollars could potentially be created in the money supply through the lending process. Therefore, a lower reserve requirement allows banks to lend more, thereby increasing the overall money supply, while a higher reserve requirement constrains the ability to create money.

This principle directly links the banking system's reserve requirements to the broader economic concept of money creation, making the deposit multiplier the key term here.