Explain the mechanism of the money multiplier?

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Explain the mechanism of the money multiplier?

Explain the mechanism of the money multiplier. Given the recent financial crisis, how can the monetary authorities influence its size and the supply of money to stimulate the economy? Could you tell me please what exactly i need to do regarding this essay ?

Asked Dec 07 by Anonymous

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The money multiplier is a ratio between central bank and commercial bank money and looks at how much commercial bank money can be created with a unit of central bank money. The monetary authorities can influence the supply of money by printing more, but that leads to devaluing of the currency. It is also possible to lower interest rates and make other changes that will lead to an adjustment of the ratio, thus increasing the supply of money and helping the economy. For an essay on this topic, it would be possible to focus on a specific way the economy is stimulated, along with whether it works and what types of problems it could lead to in the future.


Answered by Professional Tutor:Mary

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