lecture6 - Economics 310 Money Banking Click to edit Master...

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Click to edit Master subtitle style Lecture 1 Economics 310 Money & Banking University of Michigan Fall 2010 Lecture 6
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Lecture 1 22 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
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Lecture 1 33 The Fed’s 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)
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Lecture 1 44 Open Market Operations Central Bank’s purchase or sale assets in the open market n Fed’s open market operations are overseen by the FOMC Open market operations change the central bank’s 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
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Lecture 1 55 Example: Open Market Sale The Fed’s 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sells $100-worth of bonds, it receives payment in currency or by check *: * Settlement of the check implies funds are withdrawn from some bank’s reserve account Assets  Liabilities Securities    -$100 Currency   -$100 Or Bank Reserves  -$100
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Lecture 1 66 Example: Open Market Sale The non-banking public’s 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
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