New deposits expansion multiplier

(1/(d+e+c)) x MB = D
Where:
c : the public’s desired ratio of currency to
transaction
e : excess reserve
 Money Multiplier

 The Money Multiplier Model:

M= ((1+c)/(d+e+c)) x MB
 Empirical Measures of Money
Multiplier :
m1 = M1 : MB
m2 = M2 : MB
 Total Credit Multiplier

 mL = ((1-(d+e)/(d+e+c))

 L = mL x MB
 Money Supply(M1) Response
Money
Player Variable Change in
variable supply Reason
response
Central Bank Less multiplier dep.
rD ↑ ↓ expansion
↑ ↑ More MB to support
MBn currency &
checkable deposits
↑ DL so less MB to
id ↓ support D and C

Depositors {C/D} ↑ Less multiplier dep.

↓ expansion

Depositors Expected ↑ ER/D so fewer

and banks deposit ↓ reserve to support D
outflows
Borrowers ER/D so more
from banks ↑ ↑ reserve to support D;
and the other i DL so more MB to
3 players support D and C