ECO 120 Macroeconomics Week 8. Money and the Banking System Lecturer Dr. Rod Duncan. Topics. What do we mean by “money”? Equilibrium in the money market Demand for money How private banks affects the supply of money The money multiplier, m. What does money do?.
Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.
Money and the Banking System
Dr. Rod Duncan
DEBIT card and a CREDIT card?
(1) You deposit the cash in the bank, and the bank creates an account for you with $1 in it.
Money = $1
(2) The bank doesn’t keep the cash. Instead the bank has to keep R (0 < R < 1) of the $1 as reserves and then loans out $(1 - R).
(3) The person who receives the loan of $(1-R) spends the cash, and the merchant who receives the $(1-R) puts that in his bank. This increases the merchant’s account by $(1-R).
Money = $1 + $(1-R)
(4) The second bank keeps $R(1-R) as reserves and loans out $(1-R)(1-R) = $(1-R)2 as new loans.
Money = $1 + $(1-R) + $(1-R) 2 + …