Calculating Money Supply
- When a customer deposits cash or withdraws cash from their deposit account it has no effect on money supply it only changes: the composition of money, excess reserves, and required reserves
- When the fed buys or sells bonds, the money goes to ER
- Required Reserve = Amount of deposit x required reserve ratio
- Excess Reserves = Actual Reserves - Required Reserves
- Maximum amount a single bank can loan = the bank's ER
- Money multiplier = 1 / reserve ratio
- Total Change in Loans = ER x money multiplier
- Total Change in the money supply = (ER x money multiplier) + securities bought by FED
I love the video that your displaying. It gives a clear example of how the money supply works and how it affects us!
ReplyDeleteAnd also remember, when the fed wants to affect the money supply, they'll either buy or sell bonds based on a recession or an inflation period.
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