FIN 34220 Midterm: Macro: Exam 2 Study Guide
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So what is money: money is anything that fulfills those functions, *money = cash in circulation with the public + bank deposits. *bank deposit money = the money held in the bank that people deposit (the majority of the money of the economy: d = r/ . Deposits (d) depend on reserves (r) and the r-d ratio ( ) For example . 10,000 = 1,000/ where =1/10: modern banks offer cash on deposit and vault cash reserve accounts and the deposit liability is a multiple of that vault cash reserve. Fractional reserve banking: suppose someone deposits 1000 previously held in cash at home. Yes, because the liabilities are matched by total assets of 10,000, comprising reserve assets of 1000 and loan assets of 9,000. Central banking: central bank is responsible for monetary policy: controlling the money supply, money, and interest rates. Uk: an inflation target of 2% (goal is to make sure does not go above this)
