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									Money Multiplier
M = m  MB                  (Money Supply = multiplier x Monetary Base,
                            where MB = Currency + Reserves)

Deriving Money Multiplier
R = RR + ER , (Reserves = Req. Res. + Excess Res.)
RR = r  D, (Req. Res. = reserve ratio x Deposits)
R = (r  D) + ER
Adding C to both sides
e=ER/D, c = C/D, assuming proportionality of ER & C vs. D
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
                                                                          16-1
                  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 
Changes dm/dc, dm/de, dm/dr?

Full Model
M = m  (MBn + DL), where MBn is non-borrowed MB and DL are discount loans   16-2
 Excess Reserves Ratio




Determinants of e
1. i , relative Re on ER  (opportunity cost ), e 
2. Expected deposit outflows, ER insurance worth more, e 
                                                             16-3
Factors Determining Money Supply




                                   16-4
Money Supply




               16-5
Determinants
of the Money
Supply




               16-6
Deposits at Failed Banks: 1929–33




                                    16-7
e, c: 1929–33




                16-8
Money Supply and Monetary Base: 1929–33




                                          16-9

								
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