ECON 2200 Lecture Notes - Lecture 34: Reserve Requirement, Money Supply
14 May 2018
School
Department
Course
Professor
ECON 2200
Lecture 34
• They were easily recognizable because they looked the same.
• NBs attractive to depositors because:
o Legal reserve requirement
▪ Had to keep a legally-mandated % of deposits as
reserves.
o Double liability on stock
▪ If the bank went into default, the shareholders had double
liability to the bank – than just responsible for their own
investment.
• To further encourage NB charters: (Table 19.1)
o 1864: 2% tax on SB notes in circulation
o 1865: raised to 10%
o SBs decrease; NBs increase, but...
1. National Banks increase because they were not subject to
the tax
• 1870s: SBs begin to increase
o By 1900: # SBs > # NBs
o By 1900: SB total assets > NB total assets
• Quantity Theory of Money
o MV = PY (nominal output)
▪ M = money supply
▪ V = velocity
1. How many times the money is going to change hands. If it
changes hands one time, then the velocity is 1. Velocity typically
find more resources at oneclass.com
find more resources at oneclass.com
