Review for Exam #3 - Jack Brinck MacroEcon Review for...

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Jack Brinck MacroEcon 10/16/06 Review for Exam #3 Money supply multiplier= 1/reserve requirement. Used when money is deposited in a bank. Shows how much money a bank can create. One single bank cannot create the full amount, but the banking system as a whole can create the full amount. One bank can create the full amount if that one single bank is the ONLY bank in the whole country because that is the banking system. Federal Reserve Board (the Fed)- mostly has to do with money and banking. Has 5 policy instruments. See notes from prior lectures as to what these are. Open market operations is the most important. Gets involved in giving debt relief to poor countries and creating stability. Has nothing to do with taxation, govt. expenditures, health system, environment, transportation. GDP is determined in 2 ways: where savings functions intersects the investment function and wherever total expenditures intersects the 45 degree line.
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