Abstract
The simple, conventional approach to the determination of the money supply utilises a multiplier that links the money supply to the volume of high‐powered money. In the tradition of Friedman and Schwartz the multiplier is an expression including the currency ratio of the public (c) and the reserve ratio of the banks (r). In this note it is argued that such an approach must be altered for the UK institutional environment since the introduction of Competition and Credit Control. A modified multiplier expression is defined including the ratio (e) between banks' eligible liabilities and their holdings of deposits that are included in sterling M3. The modified model is then presented diagrammatically.
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