ECON 3440 Lecture Notes - Lecture 3: Money Multiplier, Monetary Base, Money Supply
15 Nov 2017
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Next substitute for cu&re from 3&4 into 2 to get: mb =c x d + r/d x d. Similarly, substitute for cu from 3 into 1 to get: m= c x d + d. M/mb = (c x d + d)/(c x d + r/d x d)=((c+1) x d)/(c+r/d) x d= (c+1)/(c+r/d(cid:15911) m is money multiplier. It gives us the amount by which money supply will goes up if mb goes up by . m > 1 because r/d is very small. In july 2015, we had m = 1340/75. 5 = 17. 51. So, if mb goes up by 1, the m will goes up by 17. 51. What"s m? m = m/mb = 1340/(71. 5+4) = 17. 51 c = cu/d = cu/(m-cu)= 71. 5/(1340-71. 5) = 0. 056. Recall: chartered banks hold reserves re in order to be able to convert d into cash on demand. Reserves are cash held by chartered banks plus checking accounts held by chartered banks at bank of ca.
