Lecture Notes 2411 Exam 2

Lecture Notes 2411 Exam 2 - Ch. 13 Multiple Deposit...

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Unformatted text preview: Ch. 13 Multiple Deposit Creation ad the Money Supply Process 11:50 Extra Credit Assignment due next Tuesday Outline provisions of this bill bailout What is this going to be called? 2 pages 3 pgs maximum Wall Street Journal Main provisions of this bill Relief for main st? Why is the market reacting the way it is? After the bailout. First time under 10000 points. Also worldwide Cite quotes, references 3% extra credit on final grade Whats important in Chapter 13 The feds balance sheet The monetary base Open market purchases and sales How a bank creates money Multiple deposit expansion Multiple deposit contraction The simple money (M1) multiplier o Limitations of the simple multiplier Players in the Money Supply Process Central Bank (Fed Reserve System) Banks (depository institutions, financial intermediaries) Depositors (individuals and institutions) Borrowers (individuals and institutions) Feds Balance Sheet Assets vs. Liabilties Monetaries Liabilities o Currency in circulations Monetary Base High powered money o MB = C + R C = currency in circulation R = total reserves in the banking system Open Market Purchase: Summary The effect of an open market purchase on reserves depends on whether the seller of the bonds keeps the proceeds from the sale in currency or in deposits Other Factors Affecting the Monetary Base Float Banks and the creation of bank deposits T Accounts o A t account indicates the change in the blance sheet of the seopistory institution resulting from a given event o Suppose your hometown bank lends 10,000 to a local shoe store owner for the purpose of increasing her inventories Hometown bank has created 10,00 in new money Writing a Check A 10,000 check drawn on her account at hometown bank is sent to a shoe store manufacturer in st louis When the check is deposited in a st louis bank and clears, demand deposits in a st louis bank return to their original pre loan level Demand deposits in the st louis bank have increased by 10000 The main point: whenever banks increase their loans, the nations money supple increases by the amount of the loan A bank buys securities Hometown bank purchases 200,000 of us government securities from a dealer located in new york city Hometown banks sends a 200,000 check drawn on its account with the federal reserve After the security dealer seopistits the check in a new york bank, the check is processed and cleared by the federal reserve system When the dealer deopists the check in its new york bank, the nations money supply rises by 200,000 Recall...
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This note was uploaded on 10/27/2009 for the course ECON 2411 taught by Professor Martel during the Spring '08 term at UConn.

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Lecture Notes 2411 Exam 2 - Ch. 13 Multiple Deposit...

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