Question

Go to the web site of the Federal Reserve Bank of St. Louis (FRED)(

fred

.stlouisfed.org

)

and

find the most recent

values

for the M1 Money S

tock

(M1SL)

and the S

t. Louis

Adjusted Monetary Base (AMBSL)

.

A.

Using these data, calculate the value of the money multiplier

.

B.

Assuming that the multiplier is equal to the value computed in part (A), if the

monetary

base increases by $400millions, by how much will the money supply

increase?

Answer 1

M1 is the quickly available of money. It supplies money from narrow ends. It includes notes, traveler’s check, demand deposit, and other checkable deposit.

Recent figure of M1 = $3,640 billion; it is updated on 8^th February, 2018.

Adjusted monetary base = $3,843 billion; it is updated on 8^th February; 2018.

A.

Difference = Adjusted base – M1

                  = 3,843 – 3,640

                  = $203 billion

Reserve ratio (RR) = Difference / Adjusted monetary base

                               = $203 / $3,843

                               = 0.0528

Money multiplier = 1 / RR

                             = 1 / 0.0528

                             = 18.94

B.

Money supply would increase by = $400 million × Money multiplier

                                                      = $400 million × 18.94

                                                      = $7,576 million