Chapter 17

Chapter 17 - Chapter 17-The Money Supply Process Players in...

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Chapter 17-The Money Supply Process Players in the Money Supply Process •Central bank (Federal Reserve System) •Banks (depository institutions; financial intermediaries) •Depositors (individuals and institutions) Fed’s Balance Sheet •Monetary Liabilities –Currency in circulation: in the hands of the public –Reserves: bank deposits at the Fed and vault cash •Assets –Government securities: holdings by the Fed that affect money supply and earn interest –Discount loans: provide reserves to banks and earn the discount rate Open Market Purchase from a Bank •Net result is that reserves have increased by $100 •No change in currency •Monetary base has risen by $100 Open Market Purchase from Nonbank Public I •Person selling bonds to the Fed deposits the Fed’s check in the bank •Identical result as the purchase from a bank Open Market Purchase from Nonbank Public II •The person selling the bonds cashes the Fed’s check •Reserves are unchanged •Currency in circulation increases by the amount of the open market purchase
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Chapter 17 - Chapter 17-The Money Supply Process Players in...

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