Money Banking And Monetary Policy
1. Discuss and explain all of the various things that you can think of that you believe will affect the size so-called money multiplier. For each of the things that you identify, make sure that you explain how and why they will affect the multiplier.
2. Please write an overview of how the Federal Reserve System interacts with commercial banks and the public to influence the amount of money in circulation in the economy.
To put these things in context, remember that the monetary base (MB) is the amount of money that is created by the Federal Reserve system through Open Market Operations. The M1 measure of the money supply represents currency in circulation + directly checkable deposits + travelers checks. The so-called M1 multiplier represents the ratio of the M1 money supply divided by the monetary base (m=M1/MB)
The St. Louis Federal Reserve maintains a series of charts that allow you to see how these things change over time:
Here is a chart that shows the trend of the monetary base over time:
Here is a chart that shows the trend of the M1 measure of the money supply over time:
Here is a link to a chart that shows the trend of the M1 multiplier over time
Here is a chart that shows the trend of M1 velocity over time: