ACT 3030 Lecture Notes - Lecture 4: Transaction Account, Excess Reserves, Money Multiplier
Document Summary
= currency (bills and coins) in circulation + check able deposits + traveler"s checks most liquid measure. + savings deposits and money market deposit accounts. A credit card is a loan from the issuer. Credit cards are not included in money supply. Attract deposits from savers and lend to borrowers how do banks earn profit ? by charging more interest borrowers than pay depositors. The fed requires banks to hold a percentage of their total check-able deposit as reserves either as cash in vaults or as deposits with fed. What happens when banks lend? they create check-able deposits check-able deposits is included in money supply. What is excess reserve? total deposit - required reserves. Money multiplier? bc one person"s income; when banks lend, there is multiple increase in checking deposits and hence money supply. Maximum change in money supply due to money creation in banks.
