Chapter 16 Terms 101 - Banks and Money - Fractional reserve...

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Banks and Money - Fractional reserve banking originated with the goldsmiths as far back as 1000 BC in Greece. Goldsmith issued paper notes indicating the amount of gold or silver that bearers had on deposit with the goldsmith. Later these notes evolved into paper money. Eventually the goldsmiths issued paper notes that exceeded the value of the gold and silver on deposit. Fractional reserve system of banking - is one in which depository institutions hold reserves that are less than the amount of total deposits. The Transactions Demand: Holding money as a medium of exchange. The level varies directly with nominal national income. The Precautionary Demand: Holding money is to meet unplanned expenditures and emergencies. The cost is foregone interest earnings, but this is offset by the security provided. The Asset Demand: Holding money as a store of value as opposed to having other assets such as small CDs, corporate bonds and stocks.
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This note was uploaded on 06/06/2011 for the course ECON 101 taught by Professor Dsliva during the Fall '11 term at Moraine Valley Community College.

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Chapter 16 Terms 101 - Banks and Money - Fractional reserve...

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