Function of Fed-
*issue paper money
*set reserved requirements and hold reserved of banks
* lends money to banks and charge them interest
*they are check cleaning system for banks
*acts like a personal bank to the government
*supervises member banks
*controls money supply in the economy
Reserve requirements
-fed requires banks to always have same money readily available to meet consumers demands for cash
-the amount set by fed, is requires reserve ratio
-the required reserve ratio is the 5 of demand deposits (checking account balances that must not be loaned out
- typically the required reserve ratio = 10%
3 types of multiple deposit expansion questions
type 1 - calculate the initial change in excess reserves
* a.k.a the amount a single bank can loan from the in initial deposit
type 2- calculate the change in loans in the banking system
type 3- calculate the change in the money supply
*sometimes type 2 and type 3 will have the same result. (i.e no Fed involvement)
Hey Rolla, I just wanted to let you know that when the FED purchases securities, interest rates decrease and bond prices go up the roof. The opposite happens when the FED sells securities.
ReplyDeleteThe way in which your broke down the questions really helps teach me how to really work problems and answer what they are asking of me. For example knowing the difference of when it is a single and banking system and when I needs to use the money multiplier.
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