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chapter 16

chapter 16. Determinants of the Money Supply. Money Multiplier M = m  MB Deriving Money Multiplier R = RR + ER RR = r D  D R = ( r D  D ) + ER Adding C to both sides R + C = MB = ( r D  D ) + ER + C 1. Tells us amount of MB needed support D , ER and C

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chapter 16

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  1. chapter 16 Determinants of the Money Supply

  2. Money Multiplier M = mMB Deriving Money Multiplier R = RR + ER RR = rDD R = (rDD) + ER Adding C to both sides R + C = MB = (rD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 = (rDD) +({ER/D}D )+ ({C/D}D) = (rD + {ER/D} + {C/D}) D

  3. 1 D = MB rD + {ER/D} + {C/D} M = D + ({C/D} D ) = (1 + {C/D}) D 1 + {C/D} M = MB rD + {ER/D} + {C/D} 1 + {C/D} m = rD + {ER/D} + {C/D} m < 1/rD because no multiple expansion for currency and because as DER Full Model M = m (MBn + DL)

  4. Excess Reserves Ratio Determinants of {ER/D} 1. i, relative RETe on ER (opportunity cost ), {ER/D}  2. Expected deposit outflows, ER insurance worth more, {ER/D} 

  5. Discount Loans and Interest Spread Determinants of DL 1. i, i – id, DL 2. id, i – id, DL

  6. Factors Determining Money Supply

  7. Money Supply

  8. Determinants of the Money Supply

  9. Deposits at Failed Banks: 1929–33

  10. {ER/D}, {C/D}: 1929–33

  11. Money Supply and Monetary Base: 1929–33

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