Note202_04 - Macroeconomics Theory and Policy Supply of...

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Macroeconomics Theory and Policy Masoud Anjomshoa 1 Masoud Anjomshoa 1 Supply of Money Masoud Anjomshoa 2 Supply of Money: Reserves ( R ): The portion of deposits that banks have not lent. A bank liabilities include deposits. A bank assets include reserves and outstanding loans. 100-percent-reserve banking : A system in which Fractional-reserve banking: A system in which In fractional-reserve banking systems, banks create money, but they don’t create wealth: Bank loans give borrowers some new money and an equal amount of new debt.
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Macroeconomics Theory and Policy Masoud Anjomshoa 2 Masoud Anjomshoa 3 Supply of Money: Commercial Banks Balance Sheet Assets | Liabilities . Open Market Operation: Reserves $200 | Deposits $1000 Loans $800 | | Reserves $160 | Deposits $800 Loans $640 | | Reserves $128 | Deposits $640 Loans $512 | | . Reserves | Deposits Loans | Masoud Anjomshoa 4 Supply of Money: Commercial Banks Balance Sheet Assets | Liabilities . Money = Cash + Demand Deposits Î . Reserves $1000 | Deposits $5000 Loans $4000 | Central Bank Balance Sheet Assets | Liabilities . . Bonds $1000 | Reserves $1000 High Powered Money = Reserves Î Money Multiplier = m = M/H Î
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Macroeconomics Theory and Policy Masoud Anjomshoa 3 Masoud Anjomshoa 5 People keep cash: cr = Open Market Operation: Central Bank buys Commercial Banks Balance Sheet Assets | Liabilities . Cash Reserves $150 | Deposits $750 $250 Loans $600 | | Reserves $ 90 | Deposits $450 $150 Loans $360 | | Reserves $ 54 | Deposits $270 $ 90 Loans $216 | | . Reserves | Deposits Loans | Required Reserves Ratio Masoud Anjomshoa 6 Commercial Banks Balance Sheet Assets | Liabilities . Cash Money= Cash +Demand Deposits Î . Reserves $ | Deposits $ $ Loans $ | Central Bank Balance Sheet Assets | Liabilities . . Bonds $ | Reserves $ | Cash $ High Powered Money = Cash + Reserves Î H = C + R = Money Multiplier = m = M/H Î
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Macroeconomics Theory and Policy Masoud Anjomshoa 4 Masoud Anjomshoa 7
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This note was uploaded on 04/10/2010 for the course ECO ECO202 taught by Professor Masoudanjamshoa during the Spring '10 term at University of Toronto.

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Note202_04 - Macroeconomics Theory and Policy Supply of...

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