high powered money formula
The SLR is called secondary reserve ratio in other countries while the required reserve ratio is referred to as the primary ratio. This has left the banking system with an oversupply of reserves. The second view holds that the money supply is determined endogenously by changes in the economic activity which affects people’s desire to hold currency relative to deposits, the rate of interest, etc.Thus the determinants of money supply are both exogenous and endogenous which can be described broadly as: the minimum cash reserve ratio, the level of bank reserves, and the desire of the people to hold currency relative to deposits. The most common view is associated with the traditional and Keynesian thinking which stresses the medium of exchange function of money.According to this view, money supply is defined as currency with the public and demand deposits with commercial banks. As of April 2019, the monetary base in the United States was about US$3.3 trillion, up from about $0.8 trillion in March 2008. Or, it depends upon off-setting changes in RRr and ERr ratios. Changes in business activity can change the behaviour of banks and the public and thus affect the money supply. The monetary base is manipulated during the conduct of monetary policy by a Typically, a central bank can also influence banking activities by manipulating interest rates and setting The monetary base has traditionally been considered Monetary Policy is generally presumed to be the policy preserve of Reserve Banks, who target an interest rate. These savings become deposits of commercial banks who, in turn, lend after meeting the statutory reserve requirements. With the increase in the supply of high-powered money to Hs’, the supply of money also increases to OMSome economists do not take into consideration excess reserves in determining high-powered money and consequently the money supply. Thus the currency ratio C/-C/D, where С is the currency and D deposits. This is to meet unanticipated cash withdrawals or adverse clearing balances. The supply of money varies directly with changes in the monetary base, and inversely with the currency and reserve ratios.The use of high-powered money consists of the demand of commercial banks for the legal limit or required reserves with the central bank and excess reserves and the demand of the public for currency. The required reserve ration (RRr) is the ratio of required reserves to deposits (RR/D), and the excess reserve ration (ERr) is the ratio or excess reserves to deposits (ER/D).Currency held by the public is another component of high-powered money. They are the liquid form of money because depositors can draw cheques for any amount lying in their accounts and the bank has to make immediate payment on demand.
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