Explore BrainMass

Money Multiplier & Currency holdings

How does the money multiplier differ when currency holdings are zero, compared to when currency holdings are greater than zero?

Solution Preview

The response addresses the queries posted in 508 words with references.

//Before explaining the answer of this question, we have to take an overview regarding what is the money multiplier. Without gaining the understanding of the concept of the money multiplier, we cannot describe the difference between the various positions of the currency. So, firstly, we will talk about the methodology of money multiplier, for example: //

Money multiplier is used to explain the relationship between the various monetary aggregates and the monetary base. It must be stable and predictable. The maximum amount of new demand-deposit money is described by the money multiplier, which is created with the help of a single initial dollar of excess reserves.

Money multiplier model depends upon the following two conditions. The first condition arises when excess ...

Solution Summary

379 words, APA