What impact does the desire to hold currency have on the multiplier?
What impact does the desire to hold currency have on the multiplier?
Homework Answers
Money multiplier = (1 + cr) / (cr + rr), where
cr: Currency deposit ratio and 0 < cr < 1, and
rr: Required reserves ratio and 0 < rr < 1.
If people desire to hold more currency, cr increases. Since cr lies between 0 and 1, when cr increases, (1 + cr) increases more than the increase in (cr + rr). Therefore, Money multiplier decreases.
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What impact does the desire to hold currency have on the
multiplier?
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