I've been working on this econ problem forever and can't figure out an answer that comes out right mathematically. Need help if anyone can.
Using the concept of multiple money creation by multiple banks. Banks always hold reserves at the minimum required level. The fraction c of the amount of a loan comes back into circulation as cash. $1 is depositited into a checking account.
Derive formulas for the total amount of deposits and reserves that will be created in the banking system if all banks and individuals behave in line with these assumptions.
I know that if no amount comes back into circulation as cash from a loan then deposits are 1 / m, m being the reserve ratio, but when the amount c comes back in as cash I can't figure it out. I'm pretty sure the formula for reserves is 1 x (1 - c). Someone must be in macroecon around here that can help...
Using the concept of multiple money creation by multiple banks. Banks always hold reserves at the minimum required level. The fraction c of the amount of a loan comes back into circulation as cash. $1 is depositited into a checking account.
Derive formulas for the total amount of deposits and reserves that will be created in the banking system if all banks and individuals behave in line with these assumptions.
I know that if no amount comes back into circulation as cash from a loan then deposits are 1 / m, m being the reserve ratio, but when the amount c comes back in as cash I can't figure it out. I'm pretty sure the formula for reserves is 1 x (1 - c). Someone must be in macroecon around here that can help...
