This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: rr Then, M s = [(cr + 1) / (cr + rr)] x B = m x B the money supply is proportional to the monetary base B . The coefficient of proportionality m is called money multiplier . money supply is determined not only by the central banks policy, but also by the behaviour of households, which hold money, and of banks, where money is held financial intermediation transferring the economys resources from economic agents who wish to save to those who wish to borrow. most prominent examples of financial intermediaries are the stock market, the bond market, and the banking system only banks have the legal authority to create assets that are part of money supply (such as checking accounts); banks are the only financial institutions that directly influence money supply, banks create money (through fractional-reserve banking) Money demand represents the amount of monetary assets that people are willing to hold (instead of illiquid assets)....
View Full Document
- Fall '11