- When a customer deposits cash or withdraws cash from their demand deposit, it has NO EFFECT on Money Supply.
It only changes
- The composition of money
- Excess reserves
- Required reserves
Can only loan money from excess reserves
Banking system (Ex: Chase, Wells Fargo)
Formulas:
ER x Multiplier = Total Money Supply
- When the FED buys or sells bonds, ER is created. Take the number that was bought or sold and multiply it by the multiplier
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