Banks keep fractional reserves against deposit liabilities

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In a world where the public holds no currency but where banks keep fractional reserves against deposit liabilities, explain how an injection of new base--say from The Fed’s purchase of securities-- lead to new M1 which is a multiple of the new base. Tell a story to illustrate this process What if the public holds currency: how does the money creation process work, and how is the money multiplier determined?

Reference no: EM131159469

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