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Menu_25_Apr_11

Menu_25_Apr_11 - TODAYS MENU Monday 25 April 2011 I...

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TODAY’S MENU: Monday 25 April 2011 I. BUSINESS A. Practice Problems 1. Chapter 30: 7-11, 13-15, 20, 21, 24 2. Chapter 31: 5-8, 10, 11, 19 II. SUBSTANCE A. Money: How do banks create it? 1. Model: Money Supply = MB x money multiplier -commercial banks create money= money multiplier -taking in deposits and taking loans -more deposits taken in, in non-banking=more loans they can make—more money multiplier=more money supply a. MB = Monetary Base (central gov. controls) = bank reserves + currency in circulation -M1 -money in circulation=money in non-banking circulation -banks in the US are required to have accounts at federal banks 2. Multiple Deposit Creation: A fairy tale -how banks create money -tooth fairy—leave tooth under pillow=money under pillow -MB before tooth fairy= a tooth -exists because it says it exists -created by actions of individuals—deposits—making loans—etc. 3. Conclusions a. More deposits, more loans, greater money supply b. Fewer deposits, fewer loan, lower money supply B. The Federal Reserve (Fed): Structure
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