Introduction In life, there are universal laws that govern everything we do. These laws are so perfect that if you were to align yourself with them, you could have so much prosperity that it would be coming out of your ears. This is because God created the universe in the image and likeness of him. It is failure to follow the universal laws that causes one to fail. The laws that were created consisted of the following: · Law of Gratitude: The Law of Gratitude states that you must show gratitude for what you have. By having gratitude, you speed your growth and success faster than you normally would. This is because if you appreciate the things you have, even if they are small things, you are open to receiving more. Law of Attraction: The Law of Attraction states that if you focus your attention on something long enough you will get it. It all starts in the mind. You think of something and when you think of it, you manifest that in your life. This could be a mental picture of a check or actual cash, but you think about it with an image. Law of Karma: the Law of Karma states that if you go out and do something bad, it will come back to you with something bad. If you do well for others, good things happen to you. The principle here is to know you can create good or bad through your actions. There will always be an effect no matter what. Law of Love: the Law of Love states that love is more than emotion or feeling; it is energy. It has substance and can be felt. Love is also considered acceptance of oneself or others. This means that no matter what you do in life if you do not approach or leave the situation out of love, it won't work. Law of Allowing: The Law of Allowing states that for us to get what we want, we must be receptive to it. We can't merely say to the Universe that we want something if we don't allow ourselves to receive it. This will defeat our purpose for wanting it in the first place. Law of Vibration: the Law of Vibration states that if you wish on something and use your thoughts to visualize it, you are halfway there to get it. To complete the cycle you must use the Law of Vibration to feel part of what you want. Do this and you'll have anything you want in life. For everything to function properly there has to be structure. Without structure, our world, or universe, would be in utter chaos. Successful people understand universal laws and apply them daily. They may not acknowledge that to you, but they do follow the laws. There is a higher power and this higher power controls the universe and what we get out of it. People who know this, but wish to direct their own lives, follow the reasons. Successful people don't sit around and say "I'll try," they say yes and act on it. Chapter - 1 The Law of Attraction The law of attraction is the most powerful force in the universe. If you work against it, it can only bring you pain and misery. Successful people know this but have kept it hidden from the lower class for centuries because th

1. How Banks Create Money
Please listen to the audio as you work through the slides

2. How Banks Create Money
Learning Objectives:
Students will be able to thoroughly and completely explain:
• How banks create and destroy money, the role of the reserve
requirement.
• How the Money Multiplier works.

3. How banks create money
1. Through lending
2. Buying bonds from the public
How banks destroy money
1. Through the payoff of loans
2. Selling bonds to the public

4. Fractional Reserve System
• Balance sheet
–Assets = Liabilities + Net Worth
–Both sides balance
• Necessary transactions to understand
–Create a bank
–Accept deposits
–Lend excess reserves

5. Formation of a
Commercial Bank
ASSETS
LIABILITIES AND
NET WORTH
TRANSACTION
1
Creating a bank
$250,000 Cash
for
Capital Stock

6. Cash $250,000 Capital Stock $250,000
Formation of a
Commercial Bank
ASSETS
LIABILITIES AND
NET WORTH
Deposit Added to Vault Cash

7. Cash $250,000 Capital Stock $250,000
Formation of a
Commercial Bank
ASSETS
LIABILITIES AND
NET WORTH
TRANSACTION
2
Acquiring
Property and
Equipment
$240,000 Cash

8. Cash $ 10,000
Property 240,000
Capital Stock $250,000
Formation of a
Commercial Bank
ASSETS
LIABILITIES AND
NET WORTH

9. Cash $ 10,000
Property 240,000
Capital Stock $250,000
Formation of a
Commercial Bank
ASSETS
LIABILITIES AND
NET WORTH
TRANSACTION
3
Accepting
Deposits into checking
accounts
$100,000 Cash

10. Cash $110,000
Property 240,000
Checkable
Deposits $100,000
Capital Stock 250,000
Formation of a
Commercial Bank
ASSETS
LIABILITIES AND
NET WORTH

11. Cash $110,000
Property 240,000
Checkable
Deposits $100,000
Capital Stock 250,000
Formation of a
Commercial Bank
ASSETS
LIABILITIES AND
NET WORTH
NOTES:
Bank deposits are
subject to a reserve
requirement.
Reserve
ratio
Commercial bank’s
required reserves
Commercial bank’s
checkable-deposit
liabilities
=

12. Cash $110,000
Property 240,000
Checkable
Deposits $100,000
Capital Stock 250,000
Formation of a
Commercial Bank
ASSETS
LIABILITIES AND
NET WORTH
Three Important Issues...
1 - Excess Reserves = Actual
Reserves - Required Reserves
(assume 20% reserve requirement)
$110,000 - 20,000 = $90,000
2 – Control of Lending Ability
3 - Asset or Liability to Which Bank?

13. Cash $110,000
Property 240,000
Checkable
Deposits $100,000
Capital Stock 250,000
Formation of a
Commercial Bank
ASSETS
LIABILITIES AND
NET WORTH
TRANSACTION
4
Deposit
Into FED account
$110,000 Cash

14. Cash $ 0
Reserves 110,000
Property 240,000
Checkable
Deposits $100,000
Capital Stock 250,000
Formation of a
Commercial Bank
ASSETS
LIABILITIES AND
NET WORTH

15. Cash $ 0
Reserves 110,000
Property 240,000
Checkable
Deposits $100,000
Capital Stock 250,000
Formation of a
Commercial Bank
ASSETS
LIABILITIES AND
NET WORTH
TRANSACTION
5
A check is
drawn against
the bank
$50,000

16. Cash $ 0
Reserves 60,000
Property 240,000
Checkable
Deposits $ 50,000
Capital Stock 250,000
Formation of a
Commercial Bank
ASSETS
LIABILITIES AND
NET WORTH

17. Cash $ 0
Reserves 60,000
Property 240,000
Checkable
Deposits $ 50,000
Capital Stock 250,000
Formation of a
Commercial Bank
ASSETS
LIABILITIES AND
NET WORTH
NOTES:
Banks create money
by lending excess
reserves and destroy
it by loan repayment.
Purchasing bonds
from the public also
creates money.

18. Reserves $ 60,000
Property 240,000
Checkable
Deposits $ 50,000
Capital Stock 250,000
Formation of a
Commercial Bank
ASSETS
LIABILITIES AND
NET WORTH
TRANSACTION
6
Make a loan
from excess
reserves
$50,000
Promisary note

19. Reserves $ 60,000
Loans 50,000
Property 240,000
Checkable
Deposits $100,000
Capital Stock 250,000
Formation of a
Commercial Bank
ASSETS
LIABILITIES AND
NET WORTH
Making the loan
created money!

20. Reserves $ 10,000
Loans 50,000
Property 240,000
Checkable
Deposits $ 50,000
Capital Stock 250,000
Formation of a
Commercial Bank
ASSETS
LIABILITIES AND
NET WORTH
After a check for the $50,000
is drawn against the bank
*

21. Reserves $ 10,000
Loans 50,000
Property 240,000
Checkable
Deposits $ 50,000
Capital Stock 250,000
ASSETS
LIABILITIES AND
NET WORTH
TRANSACTION
7
Repaying a
loan with cash
$50,000
Formation of a
Commercial Bank

22. Reserves $ 10,000
Loans 0
Property 240,000
Checkable
Deposits $ 0
Capital Stock 250,000
Formation of a
Commercial Bank
ASSETS
LIABILITIES AND
NET WORTH
$50,000 in money supply
is destroyed!

23. The Banking System
• Multiple-deposit expansion
–Assumptions:
• 20% required reserves
• All banks “loaned up” no excess reserves
• Banks lend all of excess reserves when they
get them.
• A $100 bill is found and deposited
• Multiple deposits can be created
32-26

24. MULTIPLE DEPOSIT EXPANSION PROCESS
Bank
Acquired reserves
and deposits
Required
reserves
Excess
reserves
Amount bank
can lend - New
money created
A
B
C
D
E
F
G
H
I
J
K
L
M
N
Other banks
$100.00
80.00
64.00
51.20
40.96
32.77
26.21
20.97
16.78
13.42
10.74
8.59
6.87
5.50
21.99
$20.00
16.00
12.80
10.24
8.19
6.55
5.24
4.20
3.36
2.68
2.15
1.72
1.37
1.10
4.40
$80.00
64.00
51.20
40.96
32.77
26.21
20.97
16.78
13.42
10.74
8.59
6.87
5.50
4.40
17.59
$80.00
64.00
51.20
40.96
32.77
26.21
20.97
16.78
13.42
10.74
8.59
6.87
5.50
4.40
17.59
$400.00
Total amount of money created by the banking system

25. MULTIPLE DEPOSIT EXPANSION PROCESS
Bank
Acquired reserves
and deposits
Required
reserves
Excess
reserves
Amount bank
can lend - New
money created
A
B
C
D
E
F
G
H
I
J
K
L
M
N
Other banks
$100.00
80.00
64.00
51.20
40.96
32.77
26.21
20.97
16.78
13.42
10.74
8.59
6.87
5.50
21.99
$20.00
16.00
12.80
10.24
8.19
6.55
5.24
4.20
3.36
2.68
2.15
1.72
1.37
1.10
4.40
$80.00
64.00
51.20
40.96
32.77
26.21
20.97
16.78
13.42
10.74
8.59
6.87
5.50
4.40
17.59
$80.00
64.00
51.20
40.96
32.77
26.21
20.97
16.78
13.42
10.74
8.59
6.87
5.50
4.40
17.59
$400.00
Total amount of money created by the banking system
Money
destruction works
in exactly the same
multiple way!

26. The Monetary Multiplier
• Maximum amount of new money
created by a single dollar of excess
reserves
• Higher R, lower m
– R = Reserve ratio, m = monetary multiplier
• Reversibility
–Making loans creates money
–Loan repayment destroys money

27. Maximum
checkable-
deposit
creation
= Excess
reserves x Monetary
Multiplier
Monetary
Multiplier Required reserve ratio
1
=
The Monetary Multiplier

28. The Monetary Multiplier
Monetary
multiplier =
1
required reserve ratio
New Reserves
$100
$20
Required
Reserves
$80
Excess
Reserves
$100
Initial
Deposit
$400
Bank System Lending
Money Created
Graphic
Example
=
1
R