How does the money multiplier differ when currency holdings are zero, compared to when currency holdings are greater than zero?© BrainMass Inc. brainmass.com October 24, 2018, 10:52 pm ad1c9bdddf
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//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 ...
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Suppose the financial institutions are required to keep 11% in reserve and the ratio of individuals' currency holdings to their deposits is 21%. What is the money multiplier ? If the financial institutions suddenly became concerned about the safety of their loans, and they decide to keep 2% excess reserves (reserves held by banks in excess of what banks are required to hold). What will be the money multiplier in this case?View Full Posting Details