Lecture 15 - ECO100 - S2012

2 public assets cup liabilities 100 l d 100 d

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Unformatted text preview: s (Step (Step 2) Public Assets CUP Liabilities 100 L D +100 D Commercial Bank Bank Assets Liabilities +80 CUB +100 D L +80 D Bank of Canada of Canada Assets Liabilities +100 +80 +80 M = CUP + D = –100 + 180 = +80 RE = CUB + DCB RE = CUB + DCB = +100 Desired Reserves = +36 Excess Reserves = RE © Gustavo Indart Desired Reserves = 64 Slide 17 Money Creation by Banking System v = RE / D D = RE / v D = RE / v = +100 / 0.2 = +500 M = CUP + D M = CUP + D = 100 + 500 = +400 RE = Desired Reserves © Gustavo Indart This implies that L = +400. Slide 18 Final Change in Balance Sheets Sheets Public Assets Liabilities CUP 100 L D +500 © Gustavo Indart Commercial Bank +400 Assets CUB +100 L Liabilities D Bank of Canada Assets Liabilities +500 +400 Slide 19 The The Money Multiplier v = RE / D D = (1/v) RE (1/ RE D = (1/v) RE mm = 1/v money multiplier This is assuming that CUP = 0 and thus M = D Otherwise, 1/v is the deposit multiplier M = mm RE mm mm = 1/0.2 = 5 M = mm RE = 5 (+100) = +500 © Gustavo Indart Slide 20 Open Open Market Operations The Bank of Canada can affect the money supply by affecting the reserves of the Commercial Banks The Bank of Canada affects the reserves of the Commercial Banks by buying/selling Government Bonds from/to the Public or from/to the Commercial Banks th th This is called an open market operation An open market purchase will increase the Commercial Banks’ reserves and thus the money supply An open market purchase is also called quantitative easing An open market sale will decrease the Commercial Banks’ reserves and thus the money supply © Gustavo Indart Slide 21 Open Market Purch...
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This note was uploaded on 03/28/2014 for the course ECON 100 taught by Professor Carr during the Summer '10 term at University of Toronto.

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