ECON 2000 Chapter Notes - Chapter 19: Monetary Base, Money Multiplier, Bank Reserves
Document Summary
Money supply = currency + deposits or c + d. Reserves the deposits that banks have receive but have not lent out. 100 percent reserve banking when the bank has receives deposits and keeps it all as reserves. So if someone deposited , the balance sheet would appear as: Reserves = (assets) and deposits = (liabilities) Thus, if the banking system holds 100 percent of deposits as reserves (uses a 100 percent reserve banking system) then the money supply remains the same (money supply is not affected) Fractional reserve banking when the bank keeps only a portion of its deposits as reserves. The bank uses some of its deposits to make loans (this creates money) Assume that firstbank receives as deposits, keeps as reserves, and lends the remaining . Then firstbank has increased the money supply by when it makes the loan.