$ 12-& and lsamsut § 5l· 2 A

IBalamae sheet
Ayet
Liabiiis
Rucees $12-3\Depeyit $64.
|Loas $5l-2

This pOCeS es on and om, ith eaeh dapoit and oan,

S reated
As a e t Tötal inereasei meey ppy, trom luv s.
Qank 1 Bank 2 ’ Bank3 ’

Ioo+ (1-)loo +( - o

So,
$lo0 is the initial
JLesee neeaue
Ry eur asumption Cup
ARb 0 H.
AM

AM
is ealle Resee Mutipier.
Again ARb
Mony is eeahed throygh Money Multiplier
3n ths may
inenere in M Lame fuom eadh bank hilding as
The muip
ineeased depoity -thatis, iabilittes
Jlesees eny afastien 4 ef its
a t (l-) peeenof ineLeand depeit
and leding
 ln, om Ahis peint o vi ewsot eaeh kank
a feaekion ( i ) o iks iheeased depots.
JA i) amyemding out doposits by times the
inezeaying
But he dysem as a uahele, is
Cemmeneidl Bank i Balanee Sheet.
Liabiittu
Anet.

(1-)*

foint to ee noed that Ioo o the depoit in the resernes.

hen this is caled lo0'% reene banking.
A Medel o the Money Suy
The mold has enogemeous aiables:
>theMometany Bae (H). is Ahe to tad umber o monay held ag aublic
Lwveney Cup and ay the banke sesves Roti dietly cotnole bt
Aenad Gank.
> The Reee-Depoit Ratio (rr) is the fractiom o depoits that hankshold
polieies ot bankn and the Laus
in sesNe. TA is detumined by the bwines
Jeqlatieng homhs.
Cwseney -Deperit Ratis (e) s the amontef ewveney eup peope hold
> The
deperits D.
sa fractien of theie holdings of demand
we eame to knew ealir,
M eupt D. H= e t Rb.

M Clp t D D

H. errr

1+er H
( on (cr, rY, H),
how hatmoney spply dependa
eqyualiom menehy
stpy is poeopontional do the
see that he money
(
poprtionaliy ) denotedhy m, isalled
The fuator er
Mony Multiplier.
 M mx H

So
o The meney multiplier idanger maller the Tycene depoit atis :r.
depeitraio : eri
The meney mtiplier is Jarger maller ha wpeney
menert
beeawse he smaller is cr, the omaller he proportin o the hat s.
that
stoekk thtis being wyed as amd Aagen h prspoction
analaale to be JLeseNes. uother e e , nfed deponits, smae
t eublie is len ; so thatmeas
cr meams smaler eup iie. cwreney ih ham
Roft Then m mmey
meney pryis dqet. Sine, M
A
mudipli is alho longr.
Point to beted, Valllt Cayh.
Ro = RR+ RE

monetany hase .
> The mony ppy s proportiÛnad o
Qaeis cled High Pouered Moneyl
Geeau the
Eaahwnit ot ometany bnpoduaes 'm wnits o money.
menysupy.
monetay.base has a mmltiplidteetem the
The Theee tmstuments of moneany
Mareet peaions ane the punehanes nd sals of qont bondy by the
emtnal kank. when lenra amestbugs bomds mpuae, the ameunt
on the honds inerease the menety bane and inareae
At ea
Sppy. Viee vesa
> Resese Reuirements cental benk segulationy hat mpe on donhs
a minimwm
-
-dep ratie (rYor ) - A ineease in wyee

neaniement vais Yr oma teors menety mmtiplier ond oen

meney tpy hm it
thwcent hak ehC
Diseewnt Rate t the interetste
oanks. Lewer the diseountYade, the heapnae bmro
mahes deans
 monetay
windsw. Henee a steduotion in diseount nate ad aises
bane amdmeney sutt
Tnnide Money Quthide Money ys Mny anttly melion
(eutside the private seator) by Centaad Ganth
> I* is issued in eireulatim
>lental Ban Reseres t swvleney
eeonomy.
> tMo Liuid aset in the
money in orde to wndenntnd
impetant omponentot outide lenta hnk Jeswes
The me bamk UseNes
aank.
menetory poliey ae entral eytime that we hanea
paments betmen bmhs.
a e wyd o stle t s diheent banks, thee is a
lints of
tramaetien betueem the the aeesnty that the banhy
bank sesves btneen
tramter of centul
ntad mk.
htd at the

inside privale seetov) banks

> is iss ued by ( private seetor,
tamtable anets issued by
> Deposits + all banhs, Smide Money is redld
mmeeial
the pepetive of tem doams into short
hms ong
antrm howsehotds amd matin( iabilitis, aset)
Matueetyrannor
term dep ority geamting meu leans, uhich in tu
rete inide meney y
qenetes deporit.
mide Meny Ys Gutide Moneg
as a medium ot
Meney eeds t u t . ancet mory
futwey we will kae
sue that in lhe

ale to
tmdamendallg baed om tust n tenma o
Lile money s
o the bankS balanee heet.
sondes
derighed an leqa tender
> utide money s
 So is lea that inside meny it aceepted ser tnide money.
Centl Bamk Banhs Houhaels and firm
Awet liabiliies Asts Liabitles Aset
yotd Cwveney Reeres Deposits Depocsts Loamy
Seewites Resees |Seewities Bends Securitiey Bonds
Loan to yovk.apitad |Loans Capitd Capitl
bames Bonds

QMoney Suppl Fmetion

M =
(1eYH
f(err, a,T ) (RUtRG).
iterestate ().
Meney upply is afnetin of ahapitratio, uneetainity
(mony multiplier) discont rate ), degee o
(), requine reyve /esee depot ratia(
RU: nborroned Reswe
RB: B o e d (Rswe .

M <0
2(Ta)
M >0. M M
<0.

sutput eoe to elone to

yovenment/ cenbd aanka aim is to Reep
dwget oput. The anyis Reep this is ealed iliam Poole's Analyis.
The main qmertin ob
tar's rade is, betneen mony py
detemined. Toole's anAan
Rnel intenet which wll be
atirßaetonny
satroetey seel t hotw
lt betwen tis sptis,
hih mill qiey us
(as Fixing oneyBppy
SntuestRate.
wnatabiity in mony mat
At f i , ut, thee custs
a