An airplane was carrying a briefcase containing a pile of cash worth RM1 billion. The briefcase suddenly drops onto Malaysia, and was picked up by an individual. The reserve ratio is 10%. Explain the money creation process and calculate size of the money multiplier by use the example of the T-accounts Discuss the policy options that the central bank could use to reduce money supply
IS-LM-PC Analysis
The IS (Investment Saving), LM (Liquidity Preference- Money Supply), and PC (Philips Curve) is the model that looks at the dynamics of output and inflation. It takes into account the central bank policy decision to adjust the inflation and real interest rate in the economy. It enables the economist to weather to priorities between employment and inflation rate analyzing the model. It is a practice-driven approach adopted by economists worldwide.
IS-LM Analysis
The term IS stands for Investment, Savings, and LM stands for Liquidity Preference, Money Supply. Therefore, the term IS-LM model is known as Investment Savings – Liquidity preference money Supply. This model was introduced by a Keynesian macroeconomic theory which shows the relationship between the economic goods market and loanable funds market or money market. In other words, it shows how the market for real goods interacts with the financial markets to strike a balance between the interest rate and total output in the macroeconomy. This particular model is designed in the form of a graphical representation of the Keynesian economic theory principle. The output and money are the two important factors in an economy.
An airplane was carrying a briefcase containing a pile of cash worth RM1 billion. The briefcase
suddenly drops onto Malaysia, and was picked up by an individual. The reserve ratio is 10%.
Explain the money creation process and calculate size of the money multiplier by use the
example of the T-accounts
Discuss the policy options that the central bank could use to reduce money supply
Step by step
Solved in 3 steps
Can explain the money creation process and
calculate size of the money multiplier by using the T-account? Thanks!
by Bartleby Expert
