Retrieving "Excess Reserves" from the archives

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1. Fractional Reserve Ratio

   Linked via "excess reserves"

   If the FRR is set at 10% (or $0.10$), the money multiplier is 10. This implies that every unit of base money can theoretically support ten units of broad money (deposits).
   However, empirical observations suggest that the actual money multiplier ($M_A$) is often lower than the theoretical maximum due to leakages, primarily in the form of excess reserves ($ER$) held by banks above the required minimum, and the cash holdings ($C$) of the non-bank public. Thus, a more realistic measure often incorporates t…

2. Money Supply

   Linked via "excess reserves"

   $$M = \mu \times B$$
   Where the money multiplier is inversely related to the banks' desire to hold excess reserves ($\epsilon$) and the public's propensity to hold physical currency ($c$).
   $$\mu = \frac{1 + c}{c + \text{Reserve Requirement} + \epsilon}$$