Money and Banking project

Class: BSAF-6

Submitted To: sir jamil

Submitted By: Zainab Sadaqat (UW-20-mgt-basf-011)

Laraib Fatima (UW-20-mgt-basf-026)
Malaika Zainab (UW-20-mgt-basf-009)
Esha saeed (UW-20-mg t-basf-006)
Relationship between Money Supply, Inflation, and
Growth Rate
The statistics on reserve money (M0), wide money (M2), the money multiplier, and the percentage
changes for M0 and M2 from the base year 2010 to succeeding years are displayed in the table.

The term "reserve money" (M0) refers to the monetary base, which consists of both reserves held by
commercial banks at the central bank and actual money (coins and notes). The entire quantity of money
in circulation, comprising M0 and different kinds of deposits held by the general public, is known as
broad money (M2).The ratio of M2 to M0 is measured by the money multiplier. It reflects the rate at
which original broad money may be multiplied. further funding. It is determined as the M2/M0 ratio.

M0 and M2's percentage change compares to the base year of 2010 to indicate the growth rates of
these monetary aggregates. For instance, an increase of 8% in M0 from its 2010 value is shown as a
percentage change of 8% for M0 in 2011.

The correlation between the percentage changes of M0 and M2 is shown by the covariance value of
3.159667213. The link between two variables and how they move together is measured by covariance.
In this instance, it shows that there is a positive correlation, or tendency to move in the same direction,
between the percentages changes of M0 and M2.

The data, we can observe the following trends:

The data indicates that both M0 and M2 have experienced overall monetary expansion over the years.
However, the money multiplier (M2/M0) has gradually decreased, implying that changes in reserve
money have had less impact on the expansion of broad money. The percentage changes for M0 and M2
have been significant, particularly in recent years, suggesting a higher rate of monetary growth
compared to the base year 2010. Notably, the expansion of broad money (M2) has consistently
outpaced the growth of reserve money (M0), possibly due to the money multiplier effect. These trends
collectively suggest an expansionary monetary policy with some limitations on the effectiveness of
reserve money.
The Gross Domestic Product (GDP) growth rates for several fiscal years (FY) are shown in the table along
with the real GDP growth rates for various sectors (agricultural, industrial, and services). Additionally,
the GDP growth rate and the percentage changes in each sector's growth rates over the prior year are
included.
The percentage changes in the GDP growth rate and the rates of growth in the industrial, service, and
agricultural sectors are correlated, as shown by the covariance value of 2.374269231. Measured through
covariance, two variables' interactions and joint movement are identified. It describes how closely the
GDP growth rate and the sectoral growth rates are moving together in this instance.

The statistics allow us to identify the following trends:

1. Year to year, both the GDP growth rate and the growth rates of the agricultural, industrial, and service
sectors have fluctuated.

2. The percentage changes for the growth rates in each sector and the GDP growth rate represent the
annual changes in these factors in comparison to the prior year.

3. The covariance value is positive, showing a positive correlation between the percentage changes in
the GDP growth rate and the growth rates of the industrial, service, and agricultural sectors. This may
indicate that certain variables have a tendency to move in unison. It's crucial to remember that the
covariance value does not, by itself, reveal information regarding the intensity or size of the variables. It
only indicates the direction of the relationship.
For various fiscal years (FY), the table displays the yearly inflation rates as well as the percentage
changes in those rates.

The covariance between the percentage increases in the inflation rate is represented by the covariance
value of 1.555842663. The link and movement of two variables are measured by covariance. It denotes
the degree of co-movement between the percentage changes in the inflation rate in this instance.

The yearly inflation rates have changed throughout time, reflecting shifts in the overall level of prices.
The annual variations in the inflation rate relative to the prior year are represented by the percentage
changes in the inflation rates. A positive covariance value implies that the percentage changes in the
inflation rate are positively correlated. As a result, there is some degree of co-movement in the
inflationary tendencies, as seen by the tendency of inflation rates to move together. It's crucial to
remember that the covariance value alone just reveals the direction of the relationship and does not
reveal the degree or size of the link between the variables.