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Money Market & Multiplier July 14, 2010

Posted by petrarcanomics in Role of Government.

Money Market Model

The money market  model is money supply and money demand curves and their effect on nominal interest rates and the quantity of money.

Money Multiplier

The money multiplier is a value that you multiply any change in the money supply by to calculate its effect on real national output.

money multiplier = 1 / the reserve requirement

For example, if the Fed took the expansionary policy action of purchasing a hundred billion dollars in bonds from member banks with a reserve requirement of twenty percent, then the total impact of this on the economy would be an increase of 500 billion dollars in real national income or output.



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