Chapter 15 The Money Supply and the Money Multiplier
By the end of this chapter, students should be able to:
- Compare and contrast the simple money multiplier developed in Chapter 14 "The Money Supply Process" and the m1 and m2 multipliers developed in this chapter.
- Write the equation that helps us to understand how changes in the monetary base affect the money supply.
- Explain why the M2 multiplier is almost always larger than the m1 multiplier.
- Explain why the required reserve ratio, the excess reserve ratio, and the currency ratio are in the denominator of the m1 and m2 money multipliers.
- Explain why the currency, time deposit, and money market mutual fund ratios are in the numerator of the M2 money multiplier.
- Describe how central banks influence the money supply.
- Describe how banks, borrowers, and depositors influence the money supply.