MSCLASS - Money Supply Deposit Creation and Simple Deposit...

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1 Money Supply • Deposit Creation and Simple Deposit Multiplier • Fed Balance Sheet and Sources and Uses of Reserves Reserves= Securities+Loans+Other Assets – Currency-Other •Monetary Base Multiplier model M=m x MB Factors determining the multiplier 1 •Factors determining the multiplier •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 (effective) rate to its desired target ± It does this by controlling bank reserves thru open market operations and the 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) ² So assets and liabilities explain reserves ± Ms used to be focus of Fed policy ± Monetary Base Multiplier model M=m x B ² Factors determining the multiplier ² Role of public, fed, banks In the News? 3
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2 Course Issues ± Clicker Registration – if not, must see me ± Gradebook/ email ‘warnings’ coming ± Online Midterm–Weds 3/7 noon –Thurs 3/8 midnight– Must be taken in 1 hour window during this period. COVERS weeks 1-8 in 50 multiple choice questions covering material from these weeks. (H1 25 + 15 written 3/8) ² Study big qs, hw, slides 4 ± Investment Game 2 up – learn lots more ± How to study/learn/grow wealthy – Quizlet? ± How to get help – class, chat rooms, LRC ± ODE ± Economics Career panel Tues Feb 21 from 6 to 8pm in the Student Activities Center, Raritan River lounge. 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 • SUMMARY Fed purchase increases deposits,
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This note was uploaded on 02/29/2012 for the course ECONOMICS 220:301 taught by Professor Sheflin during the Fall '09 term at Rutgers.

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MSCLASS - Money Supply Deposit Creation and Simple Deposit...

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