In the macro-economic model a money multiplier
exists which increases the value of each extra pound placed in the pocket of the consumer, dependant on their marginal propensity to consume.
The M1 money multiplier
has also declined, as less of the money supply is lent out by banks, according to Kotlikoff.
By implication, the legacy of quantitative easing would only turn out to be high inflation in the future if two conditions were to materialise: first, a breakdown in the Fed's control that permitted a rapid resurgence of the money multiplier
and money available to the public; and second, a reversal of the pattern of the past three decades to an earlier pattern in which rapid growth in the money supply was associated with high inflation.
Finally, and perhaps most importantly, the banker provides a point of continuity if the instructor wishes to follow-up this fiscal multiplier exercise with the money multiplier
The details of how the money multiplier
works are a topic for another column but trust me, that $3.
Given such monetary dynamics, the money multiplier
maintained its upward trend recording 4.
This has fuelled rising demand for currency, leading to the expansion of the monetary base, with the money multiplier
-- that is, the effect on lending by commercial banks -- boosting the money supply further.
Given the immense money multiplier
effect of the housing industry, this could provide a meaningful lift for economic growth in the coming years.
All well and good, but no one seems to have told the banks what to do with the money so in the absence of a vibrant economy and faced with corporates who do not want to borrow, these funds find their way into financial markets (the money multiplier
being currently broken).
Our study also has richer results than found in previous studies because we identify shocks to the money multiplier
and real money demand in addition to the policy shock to the monetary base.
China is likely to cut the reserve requirement ratio for banks later this month if it continues to register a reduction in its net foreign exchange purchase position and its money multiplier
in the coming months, according to the state-run China Securities Journal.
The money multiplier
, rose for the first time after dropping for five months straight.