ECON 2010-Exam 3

ECON 2010-Exam 3 - 10-28-09 Chapter 13-Money, Banks, & the...

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10-28-09 US MONEY TODAY - M3 : no longer reported by Fed. Reserve; lg. time deposits, institutional money mkts. mutual funds, & “Eurodollars” o Created controversy in ’06 when this was announced; critics claimed it masked true money supply growth levels How Do Banks Create Money - Bank Balance Sheets o Reserves: deposits that bank keeps as cash in its vault or on deposit w/ Fed. Reserve o Required reserves: reserves that bank is legally required to hold, based on its checking acct. deposits o Require reserve ratio: min. fraction of deposits banks are required by law to keep as reserves o Excess reserves: reserves that banks hold over and above legal requirement - Using T-Accounts to Show a Bank Can Create Money o Assets Liabilities o Reserves +1000 Deposits +1000 o Loans+900 Deposits +900 o * reserve requirement similar to the flipside of the multiplier* - The Simple Deposit Multiplier o Simple deposit multiplier: ratio of amt of deposits created by banks to amt. of new reserves
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This note was uploaded on 05/06/2010 for the course ECON 2010 taught by Professor Roussel during the Fall '08 term at LSU.

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ECON 2010-Exam 3 - 10-28-09 Chapter 13-Money, Banks, & the...

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