Econ310_Notes20101005 -...

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  Econ  310-004 Equations R + L = N + D + K   balance sheet constraint  = iL π L  – iD D  – C - Q bank profit function C = f(R,L,N,D) operating cost function Q = f(R,N,D) simplified liquidity cost function Q = p(X  -  R)  (X| N, D) dX φ actual liquidity cost function i L  – C L marginal net benefit from making loans -Q R  – C R marginal net benefit from holding reserves C N  + Q N marginal cost of financing via note issue i D  + C D  + Q D marginal cost of financing via deposits 1. i L  – C L  = -Q R  – C R MB of loans = MB of reserves 2. i L  – C L  = C N  + Q N   MB of loans = MC of notes 3. i L  – C L  = i D  + C D  + Q D   MB of loans = MC of deposits   4. -Q R  – C R  = C N  + Q N   MB of reserves = MC of notes 5. -Q R  – C R  = i D  + C D  + Q D   MB of reserves = MC of deposits 6. C N  + Q N  = i D  + C D  + Q D   MC of notes = MC of deposits Variable definitions
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This note was uploaded on 01/26/2011 for the course ECON 310 taught by Professor Staff during the Fall '08 term at George Mason.

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Econ310_Notes20101005 -...

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