Question

How is the money multiplier and the monetary base related?

How is the money multiplier and the monetary base related?

Homework Answers

Answer #1

Given a value of monetary base, total money supply (stock of money) in the economy at a point of time is the product of money multiplier and monetary base. So

Money supply = Money multiplier x Monetary base

Therefore,

Money multiplier = Money supply / Monetary base, and

Monetary base = Money supply / Money multiplier.

Money supply remaining unchanged, the higher (lower) the monetary base, the lower (higher) the money multiplier, and the higher (lower) the money multiplier, the lower (higher) the monetary base.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
mm = money multiplier = .8 MB = monetary base = 2500 Money Demand: Md =...
mm = money multiplier = .8 MB = monetary base = 2500 Money Demand: Md = P X [ a0 + .5 (Y) - 200 (i) ] where: a0 = 800, Y = 4000 For simplicity we hold the price level fixed at 1 and assume that inflationary expectations are fixed at 2%. Y is also held constant in this problem. 1)What is the equilibrium interest rate (i)? 2)Suppose a0 falls to 600. What is the new equilibrium interest rate?...
suppose that banks use x fraction of their deposits to buy treasuries. Derive the money multiplier...
suppose that banks use x fraction of their deposits to buy treasuries. Derive the money multiplier as a function of x, currency-deposit ratio cdr, and actual reserve ratio ar. How does an increase in x affect money multiplier, monetary base, and money supply?
3. An economy has a monetary base of 1,000 $1 bills. Calculate the money supply in...
3. An economy has a monetary base of 1,000 $1 bills. Calculate the money supply in scenarios a - d. Then answer part e. a. All money is held as currency Money Supply = $ b. All money is held as demand deposits. Banks are required to hold 100% of deposits as reserves. Money Supply = $ c. All money is held as demand deposits. Banks hold 20% of deposits as reserves. Money Supply = $ d. People hold equal...
Through the use of one monetary policy tool describe how the monetary multiplier functions in the...
Through the use of one monetary policy tool describe how the monetary multiplier functions in the economy of the United States.
Suppose that the Fed increased the base money to $30,000. a. If half of the base...
Suppose that the Fed increased the base money to $30,000. a. If half of the base money is held in currency and the other half in deposits, calculate the money multiplier as well as the total money supply if 80% of the deposits are used as loans and 20% are kept as reserves. b. Given the money multiplier in part (a), how much should the base money change for the money supply to rise by $10,000? Should the Fed purchase...
1. An economy has a borrowed monetary base of $500 billion and a nonborrowed monetary base...
1. An economy has a borrowed monetary base of $500 billion and a nonborrowed monetary base of $780 billion. The required reserve ratio is 10%. The total amount of currency in circulation is $1,350 billion. The total checkable deposits is $2,215 billion. The banking system holds a total of $400 billion in excess reserves. What is the money multiplier? Round your answer to at least 3 decimal places. 2. An economy has a borrowed monetary base of $500 billion and...
4. Money Supply (a) Express the money multiplier (m) as a function of the currency-deposit ratio...
4. Money Supply (a) Express the money multiplier (m) as a function of the currency-deposit ratio and reserve to deposit ratio. Say, the reserve-deposit ratio is 20% and the currency-deposit ratio is 40%. If the monetary base is $18million, what is the total money supply in the economy? (b) What fraction of money supply is held as deposits? (c) If several new ATMs are erected all throughout a country so that it is now much easier for people to withdraw...
What is base money? Why is it important when considering the effects of monetary policy?
What is base money? Why is it important when considering the effects of monetary policy?
B. Monetary System: The monetary base of Moneyland is $450 million. The current-deposit ratio (cr) is...
B. Monetary System: The monetary base of Moneyland is $450 million. The current-deposit ratio (cr) is 0.2 and reserve-deposit ratio (rr) is 0.4. Calculate the money multiplier and money supply. Show your work. (5 points each) Money Multiplier = Money Supply = c. Quantity Theory of Money In the country of Wiknam, assume that V is constant. Real GDP (Y) grows by 3% per year and the money stock (M) grows by 6% percent per year. What is the growth...
1)What is monetary base (MB)? 2) How to calculate monetary base in economics? 3) Explain two...
1)What is monetary base (MB)? 2) How to calculate monetary base in economics? 3) Explain two ways by which the Central bank can increase the monetary base (MB). 4) Why is the effect of Central bank actions on bank reserves less exact than the effect on the monetary base?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT