Define the factors that determine the money multiplier by using M1 money aggregate

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Define the factors that determine the money multiplier by using M1 money aggregate

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Answer 1

Answer #1

Money multiplier is defined as the percentage of deposit that Bank are hold as reserve .in other word it is that money used to create more money and it is calculated by total bank deposits by reserve required.

M1 money aggregate included physical currency, coin , demand deposit traveler check etc.

For calculating money. Multiplier by using m1 first of all use formula m1 = 1+( C /D) / [rr+(er/D) + (c/d) ], once you have m , take it into the formula ∆ms= m× ∆mb.

Factor affecting money multiplier are

1) :- current ratio c/d

2) :- the excess reserve ratio (er/d)

3) :- the required reserve ratio.

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Answer 2

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Define the factors that determine the money multiplier by using M1 money aggregate

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