Kenneth R. Szulczyk
B
B
M2
M2=
( 16 )
We substitute the M2 and monetary base definitions for the variables in the brackets,
yielding Equation 17.
B
C+R
C+D+T
M2=
( 17 )
We divide the numerator and denominator by D, yielding Equation 18.B
D
+R
D
C
CD+TD+
M2=
1
( 18 )
We add a new variable - the time deposit to the checkable deposit ratio. Public determines
this ratio by depositing their funds between time deposits, checkable deposits, and currency.
For example, the currency in circulation equals $240 billion; checkable deposits equal $600
billion; total bank reserves equal $60 billion, and total time deposits equal $800 billion.
Subsequently, we calculate the ratios for currency-deposit, reserves-deposit, and time-
checkable-deposit in Equations 19, 20, and 21.
0.40
$ 600
$ 240
=
B
B
CD= ( 19 )
0.10
$ 600
$ 60
=
B
B
RD= ( 20 )
1.333
$ 600
$ 800
=
B
B
=
D
T ( 21 )
We substitute these ratios into Equation 18, yielding Equation 22.