Lecture 15 - ECO100 - S2012

Purchase public assets liabilities gb 100 d 100

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Unformatted text preview: ase Public Assets Liabilities GB 100 D +100 Commercial Bank Bank Assets Liabilities DCB +100 D +100 Bank of Canada of Canada Assets Liabilities GB +100 DCB +100 RE = CUB + DCB CU RE = CUB + DCB = +100 Desired Reserves = +20 Reserves +20 Excess Reserves = RE Desired Reserves = 80 M = CUP + D = 0 + 100 = +100 100 +100 © Gustavo Indart Slide 22 Open Market Purchase Open Market Purchase (cont’d) Public Assets GB 100 D +100 +100 D Commercial Bank Liabilities L Assets Liabilities +80 DCB +100 D +100 Bank of Canada Assets Liabilities GB +100 DCB +100 +80 L +80 D +80 +80 +80 RE = CUB + DCB = +100 Desired Reserves = +36 Excess Reserves = RE Desired Reserves = 64 M = CUP + D = 0 + 180 = +180 © Gustavo Indart Slide 23 Open Market Purchase (cont’d) The open market purchase of $100 causes the reserves of the commercial banks to increase by the same of the commercial banks to increase by the same amount RE = +100 Given the assumption of no cash drain and that v = the assumption of no cash drain and that 0.2, the money multiplier is: mm = 1/v = 5 Since there is no cash drain, then there is no cash drain then M= D Therefore, at the end of the process the money supply will increase by will increase by M = mm RE = 5 (+100) = +500 mm (+100) +500 Therefore, the banking system will create an additional $400 through new loans $400 through new loans L = +400 +400 © Gustavo Indart Slide 24 Money Creation by an Open Market Market Purchase Public Assets GB D 100 +500 Commercial Bank Liabilities L Assets Liabilities +400 DCB +100 D +400 L +500 +500 Bank of Canada Assets Liabilities GB +100 DCB +100 +100 +400 RE = CUB + DCB = +100 Desired...
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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- Toronto.

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