005 - Money: Money: ECO473Money&BankingDr.D.Foster...

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Money: Money: ECO 473 - Money & Banking - Dr. D. Foster
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The Basics The Fed  buys buys / sells sells  Treasury securities. This  raises raises / lowers lowers  bank reserves. This  raises raises / lowers lowers  excess reserves. This causes banks to  increase increase / decrease decrease   loans. This will  raise raise / lower lower  measured money, M1.
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The Banking System Reserves T-Bills Loans Deposits  (Transactions) M1
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Terms TR = Total Reserves RR = Required Reserves rr D  = required reserve ratio ER = Excess Reserves ER* = Desired excess reserves Er u  = Undesired excess reserves e = the desired excess reserve ratio
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Terms D = (Demand) Deposits C = Currency in circulation c = desired currency ratio Δ = “Change In …” MB = Monetary Base M1 = Money Supply
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From Reserves to  Deposits TR = total reserves = RR + ER RR = Required Reserves = rr
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005 - Money: Money: ECO473Money&BankingDr.D.Foster...

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