Demanded deposit are created by FRS
FRS is the process in which bank keep a portion of their deposits in reserves, and loan out the excess
The money, the bank keeps on hand is called Required reserves ratio (percentage of cash kept back)
Banks must keep reserve deposit in there vaults or at the fed (federal reserves bank)
Total reserves or Actual reserves = RR + ER
New VS Existing Money
If the initial deposit in a bank comes from the FED or bank purchase of a bond or other money out of (buried treasure), the deposit immediately increases the money supply
The deposit then leads to further expansion of the money supply through the money creation process
Total change in MS if initial deposit is new $ = deposit plus money created by banking system
If a deposit in a bank is existing (already counted in M1; example currency or checks, depositing the amount does not change the MS immediately because it is already counted.
Existing Currency changes on deposited into a checking account only the composition of the money supply from coins/paper $ to checking account deposits.
Total change in the MS of deposits is depositing $ banking system created money only.
A Single bank can create $ by the amount of its reserve
The banking system as a whole can create $ by multiple of the excess reserves
MM X ER= expansion of money
Money Multiplier = 1/RR
Existing Currency changes on deposited into a checking account only the composition of the money supply from coins/paper $ to checking account deposits.
Total change in the MS of deposits is depositing $ banking system created money only.
A Single bank can create $ by the amount of its reserve
The banking system as a whole can create $ by multiple of the excess reserves
MM X ER= expansion of money
Money Multiplier = 1/RR
Hien your blog is well organized I know for a fact if i was ever looking for siome information about anything we learned in class I could look at yours. I enjoy how you added a visual image that way people could look at it and understand what you were discussing in your post. One think you should do is make the topic in bold font so it will be easier to find the exact thing we are looking for.
ReplyDelete