high-powered money

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Money of forms that qualify it to be used as commercial bank reserve assets. Such money is ‘high-powered’ because if the commercial banking system maintains a reserve ratio of a, an additional £1m of high-powered money allows total deposits to expand by £(1/a)m. It is a belief of monetarists that if the central bank controls ‘base’ or high-powered money, the rest of the money supply will adapt automatically.

Subjects: Economics.

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