the fed - Required reserves = the quantity of reserves...

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Required reserves = the quantity of reserves banks are required to hold Required reserve ratio = the ratio of reserves to checkable deposits a bank must maintain Ex: 0.1 ( 10% of checkable deposits must be in reserves) Excess reserves = reserves held in excess of the required level Only earn low interest rate on excess reserves (so banks try to loan them out) Total reserves = excess reserves + required reserves Loaned up = when a bank’s excess reserves equal zero Money is created by banks when they issue loans, but no one bank keeps the money it creates bcs money is created within the banking system, not by a single bank When money is withdrawn from bank, money supply in the bank is reduced by a multiple of the amount withdrawn Loan payment reduces checkable deposits. Money destroyed when loans are repaid o Money reduction process decreases checkable deposits by, at most, the amount of the reduction in deposits times the deposit multiplier Process of money creation: When a bank has excess reserves, it lends the excess, creating money The person who gets that money will deposit it at another bank.
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