3323ch19

3323ch19 - 1 Chapter 19 Bank Reserves and the Money Supply...

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1 Chapter 19 Bank Reserves and the Money Supply Payment System Process Payments are made by: Coin & currency Checks Electronic transfer Coins - Dependent on the value of the underlying metal - Govt tried to standardize the value by accepting coins with specified metallic content at face value in pymts of taxes & fees Currency - Acceptance of bank notes dependent on credit worthiness of institution - wildcat banking - directories of banks, their financial strength and value of currency - Standardize value of notes of different banks A. Notes collected issued by target bank and presented in large batch B. Cooperating banks agreed to maintain deposits with each other - Suffolk System C. Fees on cooperating bank - National Bank Act of 1863 - Natl charters - Authorization of national currency issued by natl banks - Tax notes other than Treasury notes Checks - Problem--had to be physically presented for payment - Discounted (non-par banking) - Correspondent banks - Local Clearing House - CIPC = Bank float - T-Account - Check Kiting - Intercity Clearing - Federal Reserve System - Max. 2 day delay - DACI - CIPC - Fed Float=CIPC-DACI
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2 DEPOSIT EXPANSION/ MONEY MULTIPLIER The quantity of money (M1 or M) that exists in the economy is related to the reserves in financial institutions and currency in circulation. It is necessary to understand this relationship, which is summarized by the Α money multiplier, 2245 in order to understand how the money stock can be changed. 1.
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3323ch19 - 1 Chapter 19 Bank Reserves and the Money Supply...

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