Chapter 16 Determinants of the Money Supply Money Slides: 10 Download presentation Chapter 16 Determinants of the Money Supply Money Multiplier M = m MB Deriving Money Multiplier R = RR + ER RR = r D R = (r D) + ER Adding C to both sides R + C = MB = (r 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) + (e D) + (c D) = (r + e + c) D © 2004 Pearson Addison-Wesley. All rights reserved 2 D= 1 MB r+e+c M = D + (c D ) = (1 + c) D M= 1+c MB r+e+c m = 1+c r+e+c m < 1/r because no multiple expansion for currency and because as D ER Full Model M = m (MBn + DL) © 2004 Pearson Addison-Wesley. All rights reserved 3 Excess Reserves Ratio Determinants of e 1. i , relative Re on ER (opportunity cost ), e 2. Expected deposit outflows, ER insurance worth more, e 4 Factors Determining Money Supply © 2004 Pearson Addison-Wesley. All rights reserved 5 Money Supply © 2004 Pearson Addison-Wesley. All rights reserved 6 Determinants of the Money Supply © 2004 Pearson Addison-Wesley. All rights reserved 7 Deposits at Failed Banks: 1929– 33 © 2004 Pearson Addison-Wesley. All rights reserved 8 e, c: 1929– 33 © 2004 Pearson Addison-Wesley. All rights reserved 9 Money Supply and Monetary Base: 1929– 33 © 2004 Pearson Addison-Wesley. All rights reserved 10 Chapter 16 determinants of the money supplyChapter 16 determinants of the money supplyChapter 16 determinants of the money supplyDeposit multiplierDana damianAcdc copyrightNon price determinants of supplyNon price determinants of supplyDeterminants of demandExamples of substitute goodsDeterminants of supply