{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Lecture 17-Money creation.pdf

Lecture 17-Money creation.pdf - 30-Jan-18 MACROECONOMICS...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
30-Jan-18 1 MACROECONOMICS LECTURE 17 MONEY CREATION: ENDOGENOUS VS EXOGENOUS MONEY GROUP DISCUSSION A video that describes many debatable issues about money and debt: https:// www.youtube.com/watch?v=lrQX4CF6Bxs Suppose that someone visits a bank branch in order to apply for a loan (e.g. consumer loan, student loan or mortgage). 1. What do you expect to be the first reaction of the bank officer? What is s/he going to ask the potential borrower? 2. Is the bank officer going to check the reserves of the bank? 3. If the bank officer decides to provide the loan, what factors will affect the level of the interest rate? 2 CONTENTS OF THE LECTURE 1. The exogenous money approach 2. The endogenous money approach 3. Summary: exogenous vs endogenous money 4. Endogenous money and IS-LM
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
30-Jan-18 2 CONTENTS OF THE LECTURE 1. The exogenous money approach 2. The endogenous money approach 3. Summary: exogenous vs endogenous money 4. Endogenous money and IS-LM 1. THE EXOGENOUS MONEY APPROACH The exogenous money approach is the traditional way of understanding and formulating the money creation process. It can be found in most traditional textbooks of money and banking. This approach intends to explain how much money is created in the economy as a result of the decision of the central bank to increase the reserves of commercial banks (currency+central bank reserves). 5 1. THE EXOGENOUS MONEY APPROACH In the exogenous money approach the reserve ratio plays an important role. The reserve ratio is the ratio of reserves to deposits. For example, when the reserves of a bank are £10 and the deposits are £100, the reserve ratio is 10/100=10%.
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern