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Unformatted text preview: Buy securities to earn intrest o Maintain liquidity for safety o How baks reconcile Lend to other banks overnight short term bank loans at an intrest called federal funds rate o The Banking system Multiple deposit expansion Monetary multiplier m= 1/required reserve ratio = 1/R • Monetary Multiplier o Maximum amount of new money created by single dollar of excess resrves E x M = D o Higher R means lower m, Lower R means higher M...
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- Spring '11
- Monetary Policy, Fractional-reserve banking, reserve requirement, Actual resrves Reserves