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In monetary economics, the money multiplier is the ratio of the money supply to the monetary base (i.e. central bank money). If the money multiplier is stable, it implies that the central bank can control the money supply by determining the monetary base.
The monetary base is manipulated during the conduct of monetary policy by a finance ministry or the central bank. These institutions change the monetary base through open market operations: the buying and selling of government bonds. For example, if they buy government bonds from commercial banks, they pay for them by adding new amounts to the ...
The interaction between money growth rules and interest rates plays a crucial role in shaping inflation expectations and monetary policy effectiveness. [6] Money multiplier effects; Changes in the monetary base influence the money multiplier, affecting the broader money supply and credit creation process. [7] Portfolio rebalancing
In some economics textbooks, the supply-demand equilibrium in the markets for money and reserves is represented by a simple so-called money multiplier relationship between the monetary base of the central bank and the resulting money supply including commercial bank deposits. This is a short-hand simplification which disregards several other ...
Chapter 20 covers some mathematical ground needed for Chapter 21. Chapter 21 considers the question of how a change in income resulting from an increase in money supply will be apportioned between wages, prices, employment and profits. (The results also depend on the exogenous behaviour of the workforce and on the shapes of various functions.)
The velocity of money provides another perspective on money demand.Given the nominal flow of transactions using money, if the interest rate on alternative financial assets is high, people will not want to hold much money relative to the quantity of their transactions—they try to exchange it fast for goods or other financial assets, and money is said to "burn a hole in their pocket" and ...
The QTM played an important role in the monetary policy of the 1970s and 1980s when several leading central banks (including the Federal Reserve, the Bank of England and Bundesbank) based their policies on a money supply target in accordance with the theory. However, the results were not satisfactory, and strategies focusing specifically on ...
Motivation crowding theory is the theory from psychology and microeconomics suggesting that providing extrinsic incentives for certain kinds of behavior—such as promising monetary rewards for accomplishing some task—can sometimes undermine intrinsic motivation for performing that behavior.