stylistic:tone, structural:reformatting, structural:summarization
Definition

This relation describes the money supply in terms of the level of base money and two ratios: R/D is the ratio of commercial banks' reserves to deposit accounts, and C/D is the general public's ratio of currency to deposits. As the relation is an identity, it holds true by definition, so that a change in the money supply can always be expressed in terms of these three variables alone. This may be advantageous because it is a simple way of summarising money supply changes, but the use of the identity does not in itself provide a behavioural theory of what determines the money supply. If, however, one additionally assumes that the two ratios C/D and R/D are exogenously determined constants, the equation implies that the central bank can control the money supply by controlling the monetary base via open-market operations: In this case, when the monetary base increases by, say, $1, the money supply will increase by $(1+C/D)/(R/D + C/D). This is the central contents of the money multiplier theory, and