16 Monetary Policy, Part 1-2

16 Monetary Policy, Part 1-2 - Agenda Principles of Money...

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1 16-1 Monetary Policy and the Federal Reserve System, Part 1 16-2 Agenda •P r in c ip l e s o f Mon ey Supp ly C r e a t ion •Th e F ed e r a l R e
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2 16-5 Money Creation •A c en t r a l b ank c an p r in t m on ey : ¾ The central bank’s assets are the real assets it buys from the public. ¾ The central bank’s liabilities are the money it issued to the public. •Tha t money i s ca l led the monetary base , or high- powered money 16-6 Money creation
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3 16-9 Currency •D e f in i t ion s ( con t inu ed ) : ¾ CU = cu DEP, where •DEP = depo s i t s and cu > 0 and is called the currency holding ratio. –De te rm ined by the pub l ic . ¾ Currency held is a proportion of deposits. 16-10 Bank reserves •D e f in i t ion s ( con t inu ed ) : ¾ RES = res DEP + ex DEP, where •DEP = depo s i t s and •0 <
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4 16-13 The money supply •R e l a t ion sh ip s ( con t inu ed ) : ¾ M = CU + DEP ¾ M = cu DEP + DEP ¾ M = (1 + cu )DEP 16-14 The money supply and the monetary base •R e l a t ion sh ip s ( con t inu ed ) : ¾ If M = (1 + cu )DEP and DEP = BASE/(
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This note was uploaded on 07/29/2010 for the course UGBA 100b taught by Professor Wood during the Summer '10 term at Berkeley.

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16 Monetary Policy, Part 1-2 - Agenda Principles of Money...

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