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LectureNote12 - LECTURE TWELVE Determinants of the Money...

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LECTURE TWELVE Determinants of the Money Supply ECONOMICS 209 Professor Kevin Huang Vanderbilt University
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14-1 Determinants of Money Supply: A More Realistic View The required reserve ratio is set by the FED (already studied) Depositors may want to hold some cash Banks may want to hold excess reserves
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14-2 M mM B = × The Money Supply Model Money supply is currency plus checkable deposits: M1 Monetary base is currency plus reserves The FED can control the monetary base better than it can control reserves Link the money supply ( M ) to the monetary base ( MB ) and let m be the money multiplier
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14-3 Desired Currency Ratio and Desired Excess Reserve Ratio Assume the desired level of currency C and excess reserves ER grows proportionally with checkable deposits D Then c = { C/D } = currency ratio e = { ER / D } = excess reserves ratio
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14-4 Total Reserves Equal Required Reverses Plus Excess Reserves The total amount of reserves ( ) equals the sum of required reserves ( ) and excess reserves ( ).
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LectureNote12 - LECTURE TWELVE Determinants of the Money...

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