Chapter 4. Money . Parts of Chapter 4 in the previous edition are now in Chapter 5 of the eighth edition Homework p. 100, # 2, 4 Link to syllabus
Greenspan and Paul Volcker, his predecessor Close, but no cigar
Greenspan viewed by cartoonists Inscrutable Alan
Department of: Things I should have said last time Typo/mathematical error in class example of money multiplier: m = (1 + cr)/(rr + cr). If cr =0.3 and rr = 0.2, then m = 2.6 Also – simple money multiplier in several intro MacroEcon texts, assumes cr = 0, so m = 1/rr . In this example, m would be 5. See page 90 of Mankiw text (where with no excess reserves, rr = rrr the required reserve ratio). Mankiw’s presentation emphasizes the importance of people holding cash [cr], which ultimately is more important than the required reserve ratio.
How Banks Create Money. (Intro text) New Loans Total (this New stage) Loans 900 900 810 1,710 Fourth stage 729 2,629 3,439 729 2 ,439
Reserve Requirements, US, 2006. (different intro text). If reserve requirements are small, the money multiplier is large – except for people keeping cash.
Figure 4-1, p. 95 Quantitative Easing Point is that the increase in the monetary base has not led to higher money supply, nor to inflation, because banks have accumulated excess reserves, because private sector hasn’t borrowed.
Excess Reserves Source: Fed of St. Louis: Monetary Trends (Sept. 2012)