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Magic Trick. Would you believe me if I told you I can take these $10 and turn them into over $34 without: Printing any new money Receiving any new money. Basics of Banking. Deposits. Ex: Check/savings deposit, Certificate of Deposit (CD), etc

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Presentation Transcript
magic trick
Magic Trick
  • Would you believe me if I told you I can take these $10 and turn them into over $34 without:
    • Printing any new money
    • Receiving any new money
deposits
Deposits
  • Ex: Check/savings deposit, Certificate of Deposit (CD), etc
  • When a deposit is made into a bank, the bank is required to keep a % of the deposit in reserve
      • What are reserves?
    • Known as the reserve requirement (%)
  • The remaining amount, excess reserves, is free for the bank to use as it pleases
    • Give it out as a loan
    • Buy government bonds
    • Pay expenses
loans
Loans
  • Excess reserve money given to borrowers
    • Bank earns interest on loans to make a profit
monetary growth
Monetary Growth
  • Banking (loans & deposits) can cause the supply of money to increase
    • “Creates” more money for people to use
    • How?
      • Simulation – 2 volunteers
        • Banker
        • Bank customer
results of monetary growth
Results of Monetary Growth
  • How do banks benefit from monetary growth?
    • More money = more loans = more interest = more profit
  • How do people benefit from monetary growth?
    • More money available to buy houses, cars, boats, computers, etc.
  • Amount of monetary growth depends on the reserve requirement percentage
    • Lower percentage = more money creation
quick review
Quick Review
  • What do we call the amount of a deposit that is required to go into reserves?
  • What do we call the leftover amount that is not put into reserve?
  • How do banks use excess reserves to make a profit?
  • How does banking (loans & deposits) impact the supply of money?
  • How does the reserve requirement impact monetary growth?

Reserve requirement

Excess reserves

Offer loans which earn interest

Makes it grow

Higher requirement = small growth

Low requirement = large growth