Banking Reserves and Economic Multipliers Explained
Banking Reserves and Economic Multipliers
Bank Reserves: Banking reserves refer to the reserves of lawful money that banks must hold, either in cash or at the Central Bank, to meet the cash demands of their depositors.
Investment Multiplier: This term, used in macroeconomics at the level of economic and monetary aggregates, is a theoretical concept indicating the relationship between changes in investment and changes in Gross Domestic Product (GDP). Mathematically, it is the number or ratio by which an increase in investment results in a larger increase in product or income. It limits the incremental change between national income and investment, referring to the effect on equilibrium income exerted by an autonomous increase in investment.
Money Multiplier: A concept used in business practices, this describes the difference between the monetary base and the money supply, explaining the process of money creation within the banking system. This process is essentially the added capability of loans received by banks for appropriation by individuals, resulting in increased liquidity in the economy.
Money Multiplier: Factor for Deposit Increase
The money multiplier is the factor or multiple by which deposits can increase for every dollar increase, divided by the required reserve ratio. In terms of reserves, this multiplier is equal to unity.
The National Budget Process
The national budget is an annual, systematic summary of forecasts for public expenditure and the resources required to cover them. The Budget Law outlines government action, setting expenditure priorities and estimating the resources that will finance them.
In its formulation, following constitutional provisions, the criteria of equity, equality of opportunity, and prosperity for the whole of society should be prioritized.
Furthermore, as a central act of government, the budget must be made known to society through all available means, ensuring transparency in public management and encouraging citizen participation regarding the assignment, destination, and control over budget execution.
Project Preparation
The executive branch is responsible for drafting the Bill and submitting it to Congress before September 15th of each year. At this stage, costs and resources are considered, but a thorough analysis of the socio-economic situation is also conducted. This highlights the close relationship between the budget and all government programs.
Practically, the draft general budget is prepared by the Treasury Department based on estimates provided by state agencies. These data are analyzed alongside government plans and public resource estimates. The project is then developed and sent to the president, where it is discussed, edited, and approved. Finally, it is sent to Congress with a document explaining each item.