16-11 10 A model of the money,supply exogenous variables the monetary base,B C +R controlled by the central bank the reserve-deposit ratio,rr=RD depends on regulations bank policies the currency-deposit ratio,cr=CD depends on households'preferences Economics ECONOMICS MANAGEMENT SCHOOL,TONGJI UNIVERSITY
Economics ECONOMICS & MANAGEMENT SCHOOL, TONGJI UNIVERSITY 16-11 A model of the money supply • the monetary base, B = C + R controlled by the central bank • the reserve-deposit ratio, rr = R/D depends on regulations & bank policies • the currency-deposit ratio, cr = C/D depends on households’ preferences exogenous variables
190 16-12 Solving for the money supply: M=C+D= C+D xB=mB B where C+D m 三 B C+D (C/D)+(D/D)= cr+1 C+R (C/D)+(R/D) cr+rr Economics ECONOMICS MANAGEMENT SCHOOL,TONGJI UNIVERSITY
Economics ECONOMICS & MANAGEMENT SCHOOL, TONGJI UNIVERSITY 16-12 Solving for the money supply: M CD C D B B m B C D C R cr 1 cr rr C D m B where CD DD CD RD
16-13 0 The money multiplier cr+1 M=mxB,where m cr+rr ·Ifrr<1,then m>1 ·If monetary base changes by△B, then△M=m×△B m is called the money multiplier. Economics ECONOMICS MANAGEMENT SCHOOL,TONGJI UNIVERSITY
Economics ECONOMICS & MANAGEMENT SCHOOL, TONGJI UNIVERSITY 16-13 The money multiplier • If rr < 1, then m > 1 • If monetary base changes by B, then M = m B • m is called the money multiplier. M mB , 1 where cr m cr rr