eco202_note04 - 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 banks hold all deposits as reserves. Fractional-reserve banking: A system in which banks hold a fraction of their deposits as reserves. 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 . 0.8=(1-rr) People don’t keep cash Open Market Operation: Central Bank buys $1000 bonds from a person Reserves $200 | Deposits $1000 Loans $800 | | Reserves $160 | Deposits $800 Loans $640 | | Reserves $128 | Deposits $640 Loans
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This note was uploaded on 08/12/2010 for the course ECO 202 taught by Professor Anjomshoa during the Spring '08 term at University of Toronto- Toronto.

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eco202_note04 - Macroeconomics Theory and Policy Supply of...

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