Money+Multiplier+Mechanics+-+f11

# Money+Multiplier+Mechanics+-+f11 - Money Multiplier...

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Money Multiplier Mechanics Money Multiplier Mechanics

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Bank and Fed Balance Sheet Bank and Fed Balance Sheet Federal Reserve System Federal Reserve System Banking System Banking System Assets Liabilities Assets Liabilities SEC 275 Bank Deposit 125 RES CD 1000 DL 50 FRN 200 RR 100 Loans from FED 50 ER* 25 Loans and Securities 925 Also •No Vault cash (or all FRN is currency held by public) •No unwanted excess reserves (ER* is desired excess reserves) Eco 301 - Fall 2011 2 Nick Noble Money Multiplier Mechanics
Formulas Formulas Formulas: M=CD + CUR MB = RES + CUR m=(1+c)/(r CD + e + c) M=m(MB N + DL) M=m( MB N + DL) m=M/MB CD=(1/(r CD + e + c)) MB CD=(1/(r CD + e +c) ) MB MB n =MB-DL RR = r CD CD RR = r CD CD r CD = RR/CD CUR = cCD CUR = c CD c=CUR/CD ER*= eCD ER*=e CD e=ER*/CD Eco 301 - Fall 2011 3 Nick Noble Money Multiplier Mechanics

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Compute Compute i. The reserve requirement ratio (r CD ) ________________ ii. The currency ratio (c) ________________ iii. The desired excess reserve Ratio (e) ________________ iv. The monetary base (MB) ________________ v. The non-borrowed monetary base (MB n ) ________________ vi. The money supply (M1)

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## This note was uploaded on 10/19/2011 for the course ECON 301 taught by Professor Staff during the Spring '11 term at Miami University.

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Money+Multiplier+Mechanics+-+f11 - Money Multiplier...

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