Money multiplier, Microeconomics

The Money Multiplier is explained below:

If you see carefully, the money multiplier is nothing but an inverse of a reserve ratio. Therefore, we can write MM = 1/rr, where rr is the reserve ratio. Usually, in stock terms we can write down, M2 = MM*M0 = (1/rr)*M0; and in flow terms we can write, ΔM2 = (1/rr)*ΔM0. The higher the reserve ratio, the higher will be the leakage, so to speak, from money creation process and so the lower the money multiplier. In the extreme case, when rr = 100%, MM is 1, and M2 = M0.

To complete our understanding of money supply process let us now zoom in on central bank’s balance sheet. To keep things easy, we’ll consider the balance sheet of State Bank of Nepal, SBN, abstracting from more complicated ones held by the U.S. Federal Reserve Bank, the European Central Bank or the Bank of England. The choice of SBN is, however, for illustration purposes only and this does not reflect on SBN’s actual financials.

 

 

 

 

 

 

Posted Date: 7/19/2012 4:11:21 AM | Location : United States







Related Discussions:- Money multiplier, Assignment Help, Ask Question on Money multiplier, Get Answer, Expert's Help, Money multiplier Discussions

Write discussion on Money multiplier
Your posts are moderated
Related Questions
Organic biochemistry is really as well as biochemistry. This is because the as well as atom is the central source of all existing creature's substances. 8 protons and 8 electro

I have an article about 40 pages long that''s needs to be read and then a discussion question. The post has to be 35-40 lines. I will have to send/ attach the article

What actions could a government take in order to keep the price above market equilibrium? There are four basic possibilities here; 1) Minimum price;  2) A tax on the good

Suppose the demand curve for a consumer for coffee is: Q = 6 – 2P, where Q represents the number of cups per day and P is the price of coffee per cup.   Question: Suppose the

Price Elasticity A measure of the change in demand for a product relative to unit changes in the price of the product. If the percentage change in quantity demanded is greater

Evaluate the role of multinational companies in helping developing countries to achieve economic growth/development. Explanation of growth; enhance in GDP per time period Ex

What do you mean by Consumption Set? Consumption Set: We notice a consumer faced along with possible consumption bundles within consumption set X. We generally assume that X


analyse the rise and fall in the price under market equillibrium situation?

How is the wrong conclusion result in necessary condition not in the sufficient condition? This is often heard that the market institution must not be used based onto the fact