It will eventually approach 10000 every time the bank

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It will eventually approach $10,000 Every time the bank makes a loan, they are creating new  deposits and new money o Simple money multiplier   simplified the real world in making it M m =1/rr= 1/(1/10) = 10 What if: o Banks hold excess reserves? Money supply will fall, because banks are not multiplying it at  the same rate that they could if they were not holding excess  reserves o People keep funds outside the banking system? People stop trusting banks and put money in sock drawers or  under the bed (i.e. The Great Depression) Money supply will fall The Federal Reserve o The Fed is the central bank of the US o System of different entities (Federal Reserve System) o Duties of the Fed Monetary policy (manipulates the money supply; makes it go up  and down) Relatively independent in the US which is why inflation in  the US may not be such a big deal 14 year terms; away from the influence of politics Regulating banks (moral hazard police) Have to monitor banks behavior and monitor assets and  liabilities to make sure they are not taking on too much  risk A bank for commercial banks Serves the role to commercial banks that commercial  banks serve to private individuals and citizens Deposits at the Fed are also considered reserves for  commercial banks
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One of the primary reasons for setting up the Fed was so  that commercial banks could get a loan in the event that  they got in trouble financially Discount  o Federal funds: bank deposits at the Fed Monetary Policy Tools o OMO o rr o Quantitative easing Effects of Monetary Policy o Short run Long run
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03/06/2013 14:35:00
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