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Chapter 16 Determinants of the Money Supply
© 2004 Pearson Addison-Wesley. All rights reserved 16-2 Money Multiplier M = m MB Deriving Money Multiplier R = RR + ER RR = r D R = (r D) + ER Adding C to both sides R + C = MB = (r D) + ER + C 1. Tells us amount of MB needed support D, ER and C 2. $1 of MB in ER, not support D or C MB = (r D) + (e D) + (c D) = (r + e + c) D
© 2004 Pearson Addison-Wesley. All rights reserved 16-3 1 D = MB r + e + c M = D + (c D ) = (1 + c) D 1 + c M = MB r + e + c 1 + c m = r + e + c m < 1/r because no multiple expansion for currency and because as D ER Full Model M = m (MB n + DL)
16-4 Excess Reserves Ratio Determinants of e 1.i , relative R e on ER (opportunity cost ), e 2.Expected deposit outflows, ER insurance worth more, e
© 2004 Pearson Addison-Wesley. All rights reserved 16-5 Factors Determining Money Supply
© 2004 Pearson Addison-Wesley. All rights reserved 16-6 Money Supply
© 2004 Pearson Addison-Wesley. All rights reserved 16-7 Determinants of the Money Supply
© 2004 Pearson Addison-Wesley. All rights reserved 16-8 Deposits at Failed Banks: 1929–33
© 2004 Pearson Addison-Wesley. All rights reserved 16-9 e, c: 1929–33
© 2004 Pearson Addison-Wesley. All rights reserved 16-10 Money Supply and Monetary Base: 1929–33
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Chapter 16 Determinants of the Money Supply © 2005 Pearson Education Canada Inc.
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