Chapter 15 class - Buy securities to earn intrest o...

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Money “Fractional Reserve” system Actual reserves vs. required reserves Fractioan Reserve o Gold Smiths Stored gold and gave a receipt Receipts used as money by public Made loans by issuing receipts o Balance Sheet Assets=Liabilities + Net Worth Both Sides balance o Necessary transactions Reserve Requirements o Excess reserves Actual resrves Reserves o Required reserves Checkable deposits x reserve ratio o Exmaple Cheakable deposits 10,000 Commercial Banks o Conflicting goals o Earn profit Make loans to earn intrest
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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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Chapter 15 class - Buy securities to earn intrest o...

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