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
Q. Describe pay-as-you-go pension plan? Pay-As-You-Go Pension: A pay-as-you-go pension plan sponsor basically just pays for pension benefits to retired plan members out of its


if a commodity has limited demand , should economist say that we still have a scarcity ?

In fall 2006, Pace University raised its annual tuition from $24,750 to $29,750. Freshman enrollment declined from 1500 in fall 2005 to 1110 in 2006. assuming the demand curve did

Securitization: A process in that financial relationships (like loans) are converted into financial securities or assets (like bonds) that can be bought and re-sold in securities m

Trends in the Growth of Production and  Productivity: From an analysis of the trends of growth of production and productivity of agricultural sector as a whole and of differen

JOINT DEMAND AND COMPETITIVE

solution for calculate price elasticity of demand for demand function Q= 10 - 2p for decrease in price from Rs. 3 to Rs.2..

why constant return to scale is important

The least square method is based on the assumption that the past rate of change of the variable under study will continue in the future. It is a mathematical procedure for fitting