september 6 - DD BORROWER 81,000*Writes check COMMERCIAL...

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Karina Santana September 6, 2011 EX: CREDIT UNION commercial banks ASSETS LIABILITIES ASSETS LIABILITIES Cash 100,000 deposits 100,000 Cash 100,000 deposits 100,000 98,000 loan +25,000 DD BORROWER +25,000( MONEY IS CREATED) LOAN 2,000 Fractional reserve banking : notion that a bank can lead money and make money as long as it has cash on reserve Reserve requirements: government requirements COMMERCIAL BANK 1 ASSETS LIABILITIES CASH 100,000(R.R. of 10,000) DD 100,000 LOAN +90,000 DD BORROWER +90,000 **Writes check COMMERCIAL BANK 2 ASSETS LIABILITIES CASH 90,000(R.R. of 9,000) DD 90,000 LOAN +81,000
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Unformatted text preview: DD BORROWER +81,000 **Writes check COMMERCIAL BANK 3 ASSETS LIABILITIES CASH 81,000(R.R. of 8,100) DD 90,000 LOAN +72,900 DD BORROWER +72,900 ASSUME: Reserve requirement is 10% Required reserves= the amount that each bank must hold Excess reserves= any mount in excess of what must be held Total reserves= required plus excess Money expansion multiplier Coefficient of demand deposit expansion: starting deposit 100,000 to ten banks will equal to a total of 1,000,000. Thus, old money equals 100,000 and new money created =900,000...
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