Friedman's version of money multiplier formula - Economics Stack Exchange most recent 30 from economics.stackexchange.com 2019-10-20T03:50:21Z https://economics.stackexchange.com/feeds/question/20253 https://creativecommons.org/licenses/by-sa/4.0/rdf https://economics.stackexchange.com/q/20253 2 Friedman's version of money multiplier formula zer0hedge https://economics.stackexchange.com/users/14062 2018-01-24T10:27:29Z 2018-01-24T10:27:29Z <p>In his <a href="http://www.dictionaryofeconomics.com/article?id=pde2008_Q000006" rel="nofollow noreferrer">Quantity Theory of Money</a> article M. Friedman uses the following formula for the money multiplier: $$M = H \times \frac{\frac{D}{R}(1 + \frac{D}{C})}{\frac{D}{R}+\frac{D}{C}}$$</p> <p>where $M =$ money supply under fractional reserve, $H$ = high-powered money, $D$ = deposits, $R$ = bank reserves, $C$ = currency in the hands of the public. </p> <p>Why did he write the formula in this unusual form? Are there any insights to be seen from it? </p> <p>For me the usual form is the one given for example in <a href="https://rads.stackoverflow.com/amzn/click/1464182892" rel="nofollow noreferrer">Mankiw</a>:</p> <p>$$M = H \times \frac{C+D}{C + R} = H \times \frac{\frac{C}{D} + 1}{\frac{C}{D} + \frac{R}{D}}$$ </p>