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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.
- Spring '99