Chapter 16-1 Chapter 16 Investments Accounting Principles, Ninth Edition.
chapter 16
11
chapter 16 Determinants of the Money Supply
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chapter 16. Determinants of the Money Supply. Money Multiplier M = m MB Deriving Money Multiplier R = RR + ER RR = r D D R = ( r D D ) + ER Adding C to both sides R + C = MB = ( r D D ) + ER + C 1. Tells us amount of MB needed support D , ER and C - PowerPoint PPT Presentation
Transcript of chapter 16
chapter 16
Determinants of the Money Supply
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
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)
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}
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
Copyright © 2001 Addison Wesley Longman TM 16- 6
Factors Determining Money Supply
Copyright © 2001 Addison Wesley Longman TM 16- 7
Money Supply
Copyright © 2001 Addison Wesley Longman TM 16- 8
Determinants of the Money
Supply
Copyright © 2001 Addison Wesley Longman TM 16- 9
Deposits at Failed Banks: 1929–33
Copyright © 2001 Addison Wesley Longman TM 16- 10
{ER/D}, {C/D}: 1929–33
Copyright © 2001 Addison Wesley Longman TM 16- 11
Money Supply and Monetary Base: 1929–33
