Question

How
is the money multiplier and the monetary base related?

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.

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 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...

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 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?

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?

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...

What is the difference between the consumption multiplier and
the money multiplier in terms of how each influences aggregate
demand?

Suppose that the bank sets a reserve requirement of 32, what is
the monetary multiplier? Round your answer 2 decimal places. b. If
a bank experiences a monetary multiplier of 17.0, has actual
reserves of 26,000, and excess reserves of 25,000, what is the
maximum amount of money creation that can be made?

In the economy of Robberia, the monetary base is $2,000. People
hold half of their money in the form of currency (and thus half as
bank deposits). Banks hold a quarter of their deposits in reserve.
One day, a rash of street robberies strikes fear in the population,
and people now want to hold only a fifth of their money in the form
of currency. If the central bank does nothing, what is the new
money supply? Money Supply =...

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