ECO 1102 Lecture Notes - Lecture 23: Overnight Rate, Money Supply, Autarky
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Document Summary
Refers to the money that the bank has in physical in order to meet daily requests for cash asset. It is the percentage of total demand deposits. A fraction of demand deposits that the bank holds as a cash reserve. The bank may also choose to keep reserves that are not required for everyday cash requirements, they are known as excess reserves . It is a statement that demonstrates a bank"s assets and liabilities. They include deposits, claims, assets, loans, reserves. The key takeaway is that the bank does not have an impact on the money supply. Money supply may increase by the amount given in the third loan as demonstrated in the slide examples. This process will continue in a cycle of lending and depositing where money will continue to be created and the supply increasing which each new loan that will be created. Reductions in overnight rate increase money supply similar to the example in 2008-2009.