If the ratio of currency to transaction accounts is 1, the ratio of nontransaction accounts to transaction accounts is 6, the ratio of retail money-market funds to transaction accounts is 2, the ratio of required reserves to transaction accounts is 0.07, and the ratio of excess reserves to transaction accounts is 0.02, calculate the M1 multiplier and the M2 multiplier.
What will be an ideal response?
The M1 multiplier = [1 + (C/D)]/[(RR/D) + (ER/D) + (C/D)] = [1 + 1]/[0.07 + 0.02 + 1] = 2/1.09 = 1.83?The M2 multiplier = [1 + (C/D) + (N/D) + (MMF/D)]/[(RR/D) + (ER/D) + (C/D)] = [1 + 1 + 6 + 2]/[0.07 + 0.02 + 1] = 10/1.09 = 9.17
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What will be an ideal response?
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