Sunday, March 29, 2015

Notes and Need-To-Knows 3.17.15

Key Principles:
  • A single bank can create money (through loans) by amount of excess reserves
  • The banking system as a whole can create money by a multiple (deposit on money multiplier) of the initial excess reserves

2nd and 3rd column: deposit + money created in banking system

Cash: money created in banking system only

Factors that weaken the effectiveness of deposit multiplier:
  1. Banks fail to loans out excess reserves
  2. If bank customers take loans in cash instead of new account, creates cash or currency drain.

Demand for money has inverse relationship between nominal interest rates a d quantity of money demanded.

When MD/DM increase, interest decrease. Vice versa.


Image result for demand for money curve



Posted by at

1 comment:

  1. Lori N.March 30, 2015 at 7:10 AM

    I like how your blog is put and how you organized it but I feel that maybe you should draw your graphs much neater. Also can you add an example or scenario on how the graphs will shift? I think that will help me along with other students as well.

    ReplyDelete

Subscribe to: Post Comments (Atom)