2
Money Measures in the U.S.
3
The Money Supply Process
Central bank affects Money Supply through Open Market Operations.
Commercial banks important in Money Supply process.
Money Supply = Currency + Deposits at Banks
Commercial Bank activities:
Accept Deposits : Hold Reserves : Make Loans
Reserves are deposits received but not lent out.
Bank activities summarized by a Bank Balance Sheet
ASSETS LIABILITIES
Reserves Deposits
Loans
Fractional Reserve Banking
BANK ONE Reserve Requirement
Assets Liabilities rr = .2
Reserves $200 Deposits $1,000 D 1 M=+$1,000
Loans $800
BANK TWO
Money Multiplier Assets Liabilities
Process Reserves $160 Deposits $800
Loans $640