Money Multiplier As a Determinant of Money Supply: The Case of Pakistan

Monetary policy is an important instrument for pursuing growth and stability in a less developed economy. However, it can yield desired results if and only if it is judiciously formulated and properly implemented. An appropriate formulation of monetary policy requires two basic relations to hold: (1) the demand function for money must be reasonably stable and empirically available to the monetary authorities and (2) the stock of money must be subject to control by the monetary authorities and the mechanism through which money supply is quantitatively determined in an economy should be clear to the policy-makers.