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Definition

An economics term which refers to the fact that an injection of money into the economy becomes income for many different organisations and individuals and ultimately increases national income by the reciprocal of the savings rate. If R1000 is injected into an economy with a 5% savings rate, the person or company who receives it will spend R950 and save R50. That R950 will then become income in the hands of another individual who will spend 95% of it and save 5%. Over time the injection will impact income by the reciprocal of the savings rate - or in this case by 20-fold. In January 2024 in the run-up to the general election, the South African Treasury was coming under pressure to monetise part of its gold and foreign exchange reserves to reduce the size of the government deficit. Such a move would clearly have the inflationary effect of increasing the money supply dramatically because South Africa has a very low savings rate.

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