Money Multiplier

# Money Multiplier - • 1. Primary Deposits- increases...

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Econ 4.3 Friday, March 19, 1999 Announcements: Exam #3 has been rescheduled and will be held on Wednesday, April 7th instead of April 2nd as originally scheduled. Free tutoring at 220 Boucke (865-1841). Online Quizzes are up, however there is a problem with them. All homework assignments have been posted on the website. There will be no final exam scheduled during the final exam dates. Lecture notes: Money Multiplier Mp = Potential Money Multiplier rr = Banks required reserve ratio Mp = 1 / rr R = Actual Bank Reserves DD = Checkable deposits R / rr = DD | Fully-loaned bank system Bond purchase charges Multiplier Calculation Mp = 1 / rr | eg. rr = 10% Mp = 1/ rr = 1 / .10 = 10 Fully loaned banking system R / rr = DD | R = \$200 million (\$200 million / .10) = DD = \$2,000 million Influencing Banking Systems Reserves

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Unformatted text preview: • 1. Primary Deposits- increases reserves o 1. People deposit cash in banks -- net o 2. People sell government securities to US treasury or Fed through open market operations o 3. US treasury of Fed buys government securities through open-market operations • 2. Primary Withdrawals -- decrease reserves o 1. People withdrawl cash from banks net o 2. People buy government securities from US treasury or Fed, through open - market operations o 3. US Treasury or Fed sells government securities through open-market operations. Creation of Money: Multibank System Assumptions 1. Deposit #1 primary 2. Deposit #2 derivative 3. Banks desire to be "fully-loaned" 4. Bank reserve requirement is 25% 5. Loans are associated with additions to demand deposits, immediatly checked out and deposited in another bank...
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## This note was uploaded on 02/21/2008 for the course ECON 4.3 taught by Professor Fox during the Spring '99 term at Penn State.

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Money Multiplier - • 1. Primary Deposits- increases...

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