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MSCLASS - Money Supply Fed Balance Sheet and Sources and...

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1 Money Supply Fed Balance Sheet and Sources and Uses of Reserves •Deposit Creation and Simple Deposit Multiplier •Monetary Base Multiplier model M=m x MB •Factors determining the multiplier •Role of public fed banks 1 •Role of public, fed, banks •Determinants of c, e and r •The reserves market •New items on the balance sheet and new tools of the fed Key Points The Fed targets the Fed Funds rate and can ‘force’ the market rate to its desired target It does this by controlling bank reserves thru open market operations and rates it pays and charges for holding/borrowing reserves Fed funds rate impacts other short-term rates and ultimately long-term rates as well 2 Reserve changes generally change Ms Roughly, Reserves=Fed Assets-Fed Liabilities(-Reserves) So assets and liabilities explain reserves Ms used to be focus of Fed policy Monetary Base Multiplier model M=m x B Factors determining the multiplier Role of public, fed, banks In the News? 3
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2 Course Issues Clicker Registration – if not, must see me Gradebook/ emails Online Midterm One Hour Window – starting Tuesday 10/19 6pm thru Thursday 10/21 6pm. Covers weeks 1-7 Study big qs, hw, slides 4 Investment Game 1 How to study/learn/grow wealthy How to get help Math & Actuarial Career Day 10/8 Business & Liberal Arts Career Day10/15 SAS Majors Fair 10/20 ODE Friday How is money ‘created’? Fed Open Market Purchase of ‘used’ Bond from Dealer for $100 (dealer no wealthier) Dealer Deposits $100 in Bank (M1 up by $100) Bank holds $10 in reserves, loans out $90 $90 deposited in other Bank (M1 up by additional $90) 5 Bank holds $9 as required reserves, loans out $81 etc
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