Money creation
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The document discusses how banks can create money through the process of making loans. When a bank receives a deposit, it is required to keep a certain percentage, like 20%, as reserves, but can lend out the rest. When those loans are deposited in other banks, they become part of the money supply. This process of successive lending and depositing allows banks to multiply the original deposit. For example, with a 20% reserve requirement, $100,000 in deposits could create $500,000 in the total money supply.
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Money supply
Banks are able to increase the money supply through fractional reserve banking. When a customer deposits money in a bank, the bank is only required to keep a portion of those deposits as reserves, typically around 10%, and can lend out the remaining 90% to borrowers. This lending creates new money, as the amount lent is also spent and deposited elsewhere. Through this process of lending and redepositing, the original $100 deposit can end up creating $190 in the total money supply. The central bank regulates money supply by adjusting the reserve requirement percentage - increasing it decreases lending and money supply while decreasing it has the opposite effect.
Uses and Characteristics of Money
Money serves three main purposes: as a medium of exchange to facilitate trade beyond bartering, as a unit of account to compare the values of different goods and services, and as a store of value to maintain purchasing power over time. To be considered money, an item must have six key characteristics - it must be durable, portable, divisible, uniform, have a limited supply, and be widely acceptable for transactions.
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Monetary policy aims to control the money supply and interest rates to promote economic growth and stability. The objectives of monetary policy differ for developed and underdeveloped countries. Underdeveloped countries aim to achieve full employment and economic growth, while developed countries focus on high demand without inflation. Monetary policy tools include open market operations, required reserves, and interest rates. Central banks target variables like money supply and interest rates to indirectly influence macroeconomic goals like inflation and growth. The State Bank of Pakistan has utilized tight and easy monetary stances over the years in response to economic conditions, aiming to balance objectives like inflation, growth, and stability.
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Money originated from the difficulties of bartering and was developed to serve as a medium of exchange. It has key characteristics like being generally acceptable, divisible, recognizable, and having a stated value. Early forms of money included commodity money like precious metals. Modern forms include coins, paper money, and negotiable instruments. Money supply is measured by M1, M2, and M3, which include various types of currency, checking and savings deposits, money market funds, and time deposits.
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Module 22 saving, investment, and the financial system
This document discusses key aspects of savings, investment, and the financial system. It introduces how savings and investment are related through the savings-investment identity. Private investment is mostly done using other people's money obtained through stock sales or borrowing. Borrowers are charged an interest rate. The financial system helps facilitate investment by reducing transaction costs, risk, and improving liquidity through various financial assets like loans, bonds, stocks and bank deposits.
Module 25 banking and money creation
This document discusses how banks create money through fractional reserve banking. It begins by explaining how goldsmiths in the 16th century issued receipts for gold deposits, which became used as money and allowed the goldsmiths to loan out more gold than they had in reserves. This established the concept of fractional reserve banking. It then discusses the functions of modern banks, including how they act as intermediaries between depositors and borrowers. The document also covers bank regulation implemented after the 1930s crisis, including deposit insurance, capital requirements, and reserve requirements, which help prevent bank runs.
Fiscal Policy & Inflation
This document discusses fiscal policy and how it is used in Malaysia to control inflation. It explains that fiscal policy involves adjusting government spending and tax rates to influence the economy. The government of Malaysia implements contractionary fiscal policy to reduce inflation by decreasing government purchases, increasing taxes, and decreasing transfer payments. This lowers aggregate demand and production in the economy, reducing inflationary pressures.
Sales Of Goods Act 1930
The Sales of Goods Act (1930) regulates transactions relating to the sale and purchase of goods in India. It repealed sections 76-123 of the Indian Contract Act (1872) that previously governed such transactions. The Act applies to all of India except Jammu and Kashmir. It defines key terms like buyer, seller, goods and establishes elements of a valid sales contract like agreement between parties, price, and transfer of property. The Act distinguishes between a sale, where ownership transfers immediately, and an agreement to sell, where ownership will transfer at a future time. It categorizes goods as existing, future or contingent depending on whether they are owned/possessed currently or depend on some contingency.
Policy lags and crowding out
This document discusses policy lags, the crowding-out effect, and how monetary and fiscal policy tools can impact inflation and real output in the short-run. It defines inside lags as the time for policymakers to recognize the need for and implement policy changes, and outside lags as the time for an economy to respond to policy. Crowding-out refers to how increased government borrowing to finance deficits can increase interest rates and crowd-out private borrowing and investment. The document uses aggregate demand and supply models to illustrate these concepts and how monetary policy actions like changing the money supply can lessen or reinforce the crowding-out effect of fiscal policy.
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Sale of goods act and related provisions for entrepreneurs
Sale of goods act and related provisions for entrepreneurs
Module 22 saving, investment, and the financial system
Module 22 saving, investment, and the financial system
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The document summarizes key concepts related to the global debt crisis, including:
1. Exponential growth in areas like population, money supply, and oil extraction cannot continue indefinitely in a finite world and have contributed to current economic problems.
2. Money is a social construct representing credit and debt relationships, but the modern financial system treats money and debt as assets subject to exponential growth through practices like fractional-reserve banking and securitization.
3. Inequality has increased substantially in recent decades as wealth has concentrated among a small percentage of the population while debt levels have risen exponentially, posing risks to economic and financial stability.
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I need a 100-word reply to each of the following 8 post. (800 words .docx
I need a 100-word reply to each of the following 8 post. (800 words total). I do conduct a plagiarism check before I make the final payment (been burned in the past) so please make it original (most of you are great and I have been totally satisfied).
These post are from a finance course:
Forum #1
If Bank A has an increase in deposits of $100M and their required reserves is 10%, then the must hold $10M in required reserves. This means that there is $90M in excess reserves that is available to loan, assuming that they want to use all of it for loans instead of making investments.
Bank A
Assets
Liabilities
Required reserves +$10M
Checkable deposits $100M
Excess reserves $90M
If Bank A loans out the entire $90M, then another bank will receive the funds as checkable deposits and also be required to hold 10% of the amount in reserves. At this point, we’ll call it Bank B, they will be required to hold $9M in required reserves and have $81M in excess reserves available to loan.
Bank B
Assets
Liabilities
Required reserves +$9M
Checkable deposits $90M
Excess reserves +$81M
Then let’s say that Bank B loans out all $81M and this amount gets deposited into Bank C. Bank C is now required to hold $8.1M in required reserves and has $72.9M in excess reserves, which it can also loan out.
Bank C
Assets
Liabilities
Required reserves +$8.1M
Checkable deposits +$81M
Excess reserves $72.9M
At this point, the money supply has grown by $271M ($100M Bank A + $90M Bank B + $81M Bank C).
The process can repeat, each time increasing the money supply and is called multiple deposit creation. The textbook provides a definition, “Part of the money supply process in which an increase in bank reserves results in rounds of bank loans and creation of checkable deposits and an increase in the money supply that is a multiple of the initial increase in reserves” (Hubbard, 2013, p. 427). The amount of the money supply has grown due to the original source that Bank A has received the $100M from. Bank A has helped to increase the money supply by loaning the $90M it had in excess reserves. Therefore, Bank A’s contribution was the $90M.
In order to discover how much money the banking system as a whole can create, the simple deposit multiplier can be used. This is “[t]he ratio of the amount of deposits created by banks to the amount of new reserves” (Hubbard, 2013, p. 427). This can calculation can be used for this scenario because the simple deposit multiplier assumes that no banks are going to hold any excess reserves beyond the required amount of 10%. The initial amount of increase in deposits was $100M and of that amount $10M was required in reserves. Therefore, the simple deposit multiplier is $100M/$10M and is equal to .
Austrian Macroeconomics, Lectures 3, 5, & 6 with Joe Salerno - Mises Academy
Austrian Macroeconomics, Lectures 3, 5, & 6 with Joe Salerno - Mises Academy The Ludwig von Mises Institute
The document discusses money supply and the role of commercial banks and central banks. It introduces the money multiplier concept, showing how fractional-reserve banking allows banks to create money through lending. A $100 deposit that is lent out multiple times across different banks can expand the money supply to $1000. The central bank, like the Federal Reserve, uses tools like open market operations and reserve requirements to influence bank reserves and money multiplication, thereby regulating the overall money supply and short-term interest rates in the economy.Federal Reserve 101
The Federal Reserve has three basic tools to influence the US money supply and economy:
1) The discount window rate is the interest rate banks pay to borrow from the Federal Reserve.
2) Reserve requirements determine the minimum amount of deposits banks must hold in reserves at the Federal Reserve.
3) Through open market operations, the Federal Reserve buys and sells Treasury securities to put more money into or take money out of the banking system.
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The Federal Reserve has three basic tools to influence the US money supply and economy:
1) The discount window rate is the interest rate banks pay to borrow from the Federal Reserve.
2) Reserve requirements determine the minimum amount of deposits banks must hold in reserves at the Federal Reserve.
3) Through open market operations, the Federal Reserve buys and sells Treasury securities to put more money into or take money out of the banking system.
Banks and Credit
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Money and the global debt crisis
The document discusses the history of banking and money creation in the United States. It explains that:
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2) Private banks multiply the money supply through fractional reserve banking, lending out more than they have in reserves.
3) This system means that debt levels have risen dramatically, contributing to financial crises when too much debt exists relative to income. The housing crisis starting in 2007 is analyzed as an example.
1. One of the functions of money is that it is a ‘store of value’..docx
1. One of the functions of money is that it is a ‘store of value’. Explain
2. What is the difference between fiat money and a credit card?
3. How do commercial banks maximize their stockholders’ wealth?
4. The Federal Reserve System (the Fed) is the central bank of the United States. What are its primary functions?
5. Assume that the US economy is experiencing a rather severe recession. How might the Fed utilize the discount rate to speed up the economy? Explain in detail.
6. Assume that the US economy is experiencing a rather severe recession. How might the Fed utilize open market operations to speed up the economy (use lecture notes to answer this)? Explain in detail.
7. Using the explanation in the lecture, explain how the Fed’s purchase of bonds (securities) on the open market can not only increase the money supply through banks’ lending but also decrease the EFFECTIVE interest rate for borrowers. Use an example with actual interest rates.
8. Explain how the required reserve requirement can be used by the Fed to either expand or contract the money supply.
9. A) Using the formula given in the lecture, calculate how much the money supply would increase given an injection of $10 million with a required reserve ratio of 5%. B) Given the same data, how much would the money supply decrease if $10 million were taken out of the money supply with a 5% required reserve ratio?.
10. What 3 events turned an ordinary recession in 1929 into the Great Depression?
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12. Assume that you have 100 $1 bills. Assume also that I have 4 $100 bills. Explain why even though you have more paper money (100 pieces of paper), the value of my four pieces of paper is greater than yours.
13. The Federal Reserve can in effect expand or contract the supply of money in the US.
a. Explain what you think the Fed must do to expand the money supply.
b. Identify 2 reasons why the Fed would do this.
14. Is it possible that the Fed, since it supposedly acts independently of the US government, could use monetary policies (expanding or contracting the money supply) in order to benefit only the wealthiest corporations and individuals while ignoring the lower classes? Explain your opinion here in detail.
15. Explain your opinion as to whether you feel that using a central bank (the Fed) to control all of the US’s major monetary policies as well as all of its money is dangerous? What might be some of the unintended consequences of giving this much power to one private entity?
Module 7 Lecture (Ch. 18): Money and the Monetary System
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Money takes the form of either commodity money (with intrinsic value like gold) or fiat money (without intrinsic value established by government decree). Money serves three functions as a medium of exchange, unit of account, and store of value. The money supply includes M1 (currency and checkable deposits) and broader M2 (M1 plus savings deposits and money market funds). When the central bank increases reserves, the banking system can expand deposits by making loans, multiplying the initial change in reserves through the deposit multiplier.
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