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Understanding Money Creation and Monetary Policy

Explore the measures of money, Federal Reserve System, how banks create money, reserve requirements, and the impact of quantitative easing on money supply. Gain insights into the monetary base and its determinants from the past to present.

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Understanding Money Creation and Monetary Policy

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  1. 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

  2. Table 4-1 p. 86. The Measures of Money

  3. The Federal Reserve System. Other Text

  4. OMC Meeting (early 2012?)

  5. Open Market Committee Seating

  6. RollerCoaster joke

  7. GreenspanJoke

  8. Greenspan and Paul Volcker, his predecessor Close, but no cigar

  9. Greenspan viewed by cartoonists Inscrutable Alan

  10. 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.

  11. The Monetary Base and the Money Supply. (intro text)

  12. 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

  13. Reserve Requirements, US, 2006. (different intro text). If reserve requirements are small, the money multiplier is large – except for people keeping cash.

  14. 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.

  15. Excess Reserves Source: Fed of St. Louis: Monetary Trends (Sept. 2012)

  16. Table 4.2 p. 97 The Money Supply and its Determinants, 1929 and 1933.

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