Money Multiplier
M = m _ MB
Deriving Money Multiplier
R = RR + ER
RR = rD _ D
R = (rD _ D) + ER
Adding C to both sides
R + C = MB = (rD _ D) + ER + C
1. Tells us amount of MB needed support D, ER and C
2. An additional $1 of MB in C does not support additional D .
3. An additional $1 of MB in ER does not support D or C
MB = rD_D + {ER/D}_D + {C/D}_D
= [rD + {ER/D} + {C/D}] _ D
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