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Money and Banking Lecture 35 Review of the Previous Lecture • Deposit Creation in a Single Bank • Deposit Creation in a System of Banks • Deposit Expansion Multiplier • Deposit Expansion with Excess Reserves and Cash Withdrawals • Money Multiplier Money Multiplier • Remember, we discussed that • Assuming • no excess reserves are held • there are no changes in the amount of currency held by the public, • the change in deposits will be the inverse of the required deposit reserve ratio (rD) times the change in required reserves, or ∆D = (1/rD) ∆RR • Alternatively • RR = rDD or ΔRR = rDΔD • So for every dollar increase in reserves, deposits increase by 1 rD • The term (1/rD) represents the simple deposit expansion multiplier. • A decrease in reserves will generate a deposit contraction in a multiple amount too Money Multiplier • The money multiplier shows how the quantity of money (checking account plus currency) is related to the monetary base (reserves in the banking system plus currency held by the nonbank public) • Taking m for money multiplier and MB for monetary base, the Quantity of Money, M is M = m x MB (This is why the MB is called High Powered Money) ... - tailieumienphi.vn