G. Money and Banking and How Banks Create Money 1. The process of monetary creation...an application 2. The application of the monetary multiplier H. The Federal Reserve Banks and Monetary Policy 1. Effect which open market operations have on money supply requirements have on money supply 3. Effect which changes in the discount rate have on money supply 4. Effect which changes in the money supply have on aggregate demand and equilibrium GDP 5. Strengths, shortcomings, and problems with monetary policy 2. Effect which changes in reserve
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G. Money and Banking and How Banks Create Money 1. The process of monetary creation...an application 2. The application of the monetary multiplier H. The.
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G. Money and Banking and HowBanks Create Money1. The process of monetary
creation...an application2. The application of the monetary
multiplierH. The Federal Reserve Banks and
Monetary Policy1. Effect which open market
operations have on money supply
requirements have on money supply3. Effect which changes in the
discount rate have on money supply4. Effect which changes in the money
supply have on aggregate demandand equilibrium GDP
5. Strengths, shortcomings, andproblems with monetary policy
2. Effect which changes in reserve
BOARD OFGOVERNORS
OPENMARKET
COMMITTEE
FEDERALADVISORY
BOARD
TWELVE FEDERALRESERVE BANKS
COMMERCIALBANKS THRIFTS
PUBLIC: HOUSEHOLDS AND BUSINESS
$$$$1/3 NATIONAL2/3 STATE
$100,000
BANK A
BANK B
BANK C
EntireMoneySupply
BANK AASSETS
VAULT CASH100,000
LIABILITIESCHECKING DEPOSITS
100,000
MONEY SUPPLY!!!!!!!
$100,000
Money in the bank’s vault is NOT part of money supply!!!
BANK AASSETS
VAULT CASH100,000
LIABILITIESCHECKING DEPOSITS
100,000
LEGAL RESERVES--Those assets which bankscan use to meet their reserve requirements.They consist of vault cash and the bank's
deposits at the Federal Reserve.
BANK AASSETS
VAULT CASH100,000
LIABILITIESCHECKING DEPOSITS
100,000
LEGAL RESERVES--Those assets which bankscan use to meet their reserve requirements.They consist of vault cash and the bank's
deposits at the Federal Reserve.
BANK AASSETS
VAULT CASH100,000
LIABILITIESCHECKING DEPOSITS
100,000
REQUIRED RESERVES--That portion of abank's reserves which must bemaintained. Required reserves are equal
the commercial bank's checking depositliabilities.
to the reserve ratio multiplied times
$100,000
BANK A
$100,000$100,000
ASSETSVAULT CASH
100,000
LIABILITIESCHECKING DEPOSITS
100,000
REQUIRED RESERVES--That portion of abank's reserves which must bemaintained. Required reserves are equal
the commercial bank's checking depositliabilities.
to the reserve ratio multiplied times
RESERVE RATIO--That percentage of a bank'schecking deposit liabilities which must be maintained
as legal reserves. This ratio is set by the FED.
$100,000
BANK A
$100,000$100,000
ASSETSVAULT CASH
100,000
LIABILITIESCHECKING DEPOSITS
100,000
REQUIRED RESERVES--That portion of abank's reserves which must bemaintained. Required reserves are equal
the commercial bank's checking depositliabilities.
to the reserve ratio multiplied times
RESERVE RATIO--That percentage of a bank'schecking deposit liabilities which must be maintained
as legal reserves. This ratio is set by the FED.ASSUME RESERVE RATIO
IS 20%
ASSETSVAULT CASH
100,000
LIABILITIESCHECKING DEPOSITS
100,000
REQUIRED RESERVES--That portion of abank's reserves which must bemaintained. Required reserves are equal
the commercial bank's checking depositliabilities.
to the reserve ratio multiplied times
20%
ASSETSVAULT CASH
LIABILITIESCHECKING DEPOSITS
100,000
REQUIRED RESERVES--That portion of abank's reserves which must bemaintained. Required reserves are equal
the commercial bank's checking depositliabilities.
to the reserve ratio multiplied times
REQUIRED 20,000? 80,000
ASSETSVAULT CASH
LIABILITIESCHECKING DEPOSITS
100,000
REQUIRED RESERVES--That portion of abank's reserves which must bemaintained. Required reserves are equal
the commercial bank's checking depositliabilities.
to the reserve ratio multiplied times
20%
REQUIRED 20,000? 80,000
NOTE: IT’S 20% TIMESTHE CHECKING
DEPOSIT BALANCE..NOT 20% TIMES “VAULT
CASH”
$100,000
BANK A
$100,000$100,000
ASSETSVAULT CASH
LIABILITIESCHECKING DEPOSITS
100,000
REQUIRED RESERVES--That portion of abank's reserves which must bemaintained. Required reserves are equal
the commercial bank's checking depositliabilities.
to the reserve ratio multiplied times
20%
REQUIRED 20,000? 80,000
EXCESS RESERVES--The difference betweena bank's actual legal reserves and its
required reserves.
$100,000
BANK A
$100,000$100,000
ASSETSVAULT CASH
LIABILITIESCHECKING DEPOSITS
100,000
REQUIRED RESERVES--That portion of abank's reserves which must bemaintained. Required reserves are equal
the commercial bank's checking depositliabilities.
to the reserve ratio multiplied times
20%
REQUIRED 20,000? 80,000
A bank can loan out its excessreserves!!!!!!!!!!!!
$100,000
BANK A
$100,000$100,000
ASSETSVAULT CASH
LIABILITIESCHECKING DEPOSITS
100,000
REQUIRED RESERVES--That portion of abank's reserves which must be
maintained. Required reserves are equal
the commercial bank's checking depositliabilities.
to the reserve ratio multiplied times
20%
REQUIRED 20,000
A bank can loan out its excessreserves!!!!!!!!!!!!