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Transcript of chapter 16
![Page 1: chapter 16](https://reader036.fdocuments.net/reader036/viewer/2022082505/56812a65550346895d8ddefb/html5/thumbnails/1.jpg)
chapter 16
Determinants of the Money Supply
![Page 2: chapter 16](https://reader036.fdocuments.net/reader036/viewer/2022082505/56812a65550346895d8ddefb/html5/thumbnails/2.jpg)
Copyright © 2001 Addison Wesley Longman TM 16- 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 = (rDD) +({ER/D}D )+ ({C/D}D)
= (rD + {ER/D} + {C/D}) D
![Page 3: chapter 16](https://reader036.fdocuments.net/reader036/viewer/2022082505/56812a65550346895d8ddefb/html5/thumbnails/3.jpg)
Copyright © 2001 Addison Wesley Longman TM 16- 3
1D = 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)
![Page 4: chapter 16](https://reader036.fdocuments.net/reader036/viewer/2022082505/56812a65550346895d8ddefb/html5/thumbnails/4.jpg)
Copyright © 2001 Addison Wesley Longman TM 16- 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}
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Copyright © 2001 Addison Wesley Longman TM 16- 5
Determinants of DL1. i , i – id , DL 2. id , i – id , DL
Discount Loans and Interest Spread
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Copyright © 2001 Addison Wesley Longman TM 16- 6
Factors Determining Money Supply
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Copyright © 2001 Addison Wesley Longman TM 16- 7
Money Supply
![Page 8: chapter 16](https://reader036.fdocuments.net/reader036/viewer/2022082505/56812a65550346895d8ddefb/html5/thumbnails/8.jpg)
Copyright © 2001 Addison Wesley Longman TM 16- 8
Determinants of the Money
Supply
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Copyright © 2001 Addison Wesley Longman TM 16- 9
Deposits at Failed Banks: 1929–33
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Copyright © 2001 Addison Wesley Longman TM 16- 10
{ER/D}, {C/D}: 1929–33
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Copyright © 2001 Addison Wesley Longman TM 16- 11
Money Supply and Monetary Base: 1929–33