Lecture 7_EC3332 [Compatibility Mode][1]

Lecture 7_EC3332 [Compatibility Mode][1] - Lecture 7 The...

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1 Lecture 7 The Money Supply Process Money Multiplier M = m × MB Deriving Money Multiplier R = RR + ER RR = r D × D R = ( r D × D ) + ER
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2 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 2. $1 of MB in ER , not support D or C MB = r D × D + { ER / D } × D + { C / D } × D = [ r D + { ER / D } + { C / D }] × D 1 D =————————— × MB [ r D + { ER / D } + { C / D }] M = D + { C / D } × D = [1 + { C / D }] × D [1 + { C / D }] M = —————————— × MB [ r D + { ER / D } + { C / D }] [1 + { C / D }] m =————————— [ r D + { ER / D } + { C / D }]
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3 m < 1/ r d because no multiple expansion for currency and because as M ER Full Model M = m × [ MB n + DL ] Excess Reserves Ratio Determinants of {ER/D} 1 . i , Relative RET e on ER (opportunity cost ), { ER/D } 2. Expected deposit outflows, ER insurance worth more, { ER/D }
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4 Discount Loans and Interest Spread Determinants of DL
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This note was uploaded on 02/29/2012 for the course ECONOMICS EC 3332 taught by Professor Shandre during the Spring '12 term at National University of Singapore.

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Lecture 7_EC3332 [Compatibility Mode][1] - Lecture 7 The...

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