lecture6 - Click to edit Master subtitle style Lecture 1...

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Unformatted text preview: Click to edit Master subtitle style Lecture 1 Economics 310 Money & Banking University of Michigan Fall 2010 Lecture 6 Lecture 1 22 Lecture 1 Readings Federal Reserve Banking System n Chapter 13 (middle section, relating to The Origins of the Federal Reserve) Determination of the Money Supply n Chapter 14 Lecture 1 33 Lecture 1 The Feds Balance Sheet Assets Liabilities Gold and precious metals Domestic bonds Official Foreign Reserves (i.e. foreign currency, foreign assets etc) Domestic currency (in circulation) Reserve Accounts (i.e. accounts in which banks hold their reserves) Lecture 1 44 Lecture 1 Open Market Operations Central Banks purchase or sale assets in the open market n Feds open market operations are overseen by the FOMC Open market operations change the central banks asset holdings Must also change the liabilities outstanding n Currency in circulation n Bank reserves Since base money is simply the sum of Central Bank liabilities, open market operations will have a direct impact on base money Lecture 1 55 Lecture 1 Example: Open Market Sale The Feds T-account If The Fed sells $100-worth of bonds, it receives payment in currency or by check *: * Settlement of the check implies funds are withdrawn from some banks reserve account Assets Liabilities Securities -$100 Currency -$100 Or Bank Reserves -$100 Lecture 1 66 Lecture 1 Example: Open Market Sale The non-banking publics T-account If the non-banking public buys $100- worth of bonds from the Fed, and pays with currency : Assets Liabilities Securities +$100 Currency -$100 Lecture 1...
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This note was uploaded on 12/08/2010 for the course PYSCH 111 taught by Professor Malley during the Spring '08 term at University of Michigan.

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lecture6 - Click to edit Master subtitle style Lecture 1...

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