Assume that the money multiplier m deposit ratio, e is the excess reserve ratio and r is the required reserve ratio. 1+c)/(r+e+c). Where c is the currency a) With examples, explain what will cause an increase in the ratios c, e and r b) Explain the implications of an increase in each of the ratios on the ability of the central bank to increase money supply by increasing the monetary base. Page 1 of 2 c) Assume that consumers trust in the banking sector improves because of more transparent banking practices. How will this affect the money multiplier and the central bank's monetary control?
Assume that the money multiplier m deposit ratio, e is the excess reserve ratio and r is the required reserve ratio. 1+c)/(r+e+c). Where c is the currency a) With examples, explain what will cause an increase in the ratios c, e and r b) Explain the implications of an increase in each of the ratios on the ability of the central bank to increase money supply by increasing the monetary base. Page 1 of 2 c) Assume that consumers trust in the banking sector improves because of more transparent banking practices. How will this affect the money multiplier and the central bank's monetary control?
Chapter25: Money Creation
Section: Chapter Questions
Problem 8SQP
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Transcribed Image Text:Assume that the money multiplier m = (1+c)/(r+e+c). Where c is the currency
deposit ratio, e is the excess reserve ratio and r is the required reserve ratio.
a) With examples, explain what will cause an increase in the ratios c, e and r
b) Explain the implications of an increase in each of the ratios on the ability of the
central bank to increase money supply by increasing the monetary base.
Page 1 of 2
c) Assume that consumers trust in the banking sector improves because of more
transparent banking practices. How will this affect the money multiplier and
the central bank's monetary control?
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