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Lecture 8

ECON 1BB3 Lecture Notes - Lecture 8: Reserve Requirement, Money Multiplier, Autarky


Department
Economics
Course Code
ECON 1BB3
Professor
Bridget O' Shaughnessy
Lecture
8

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How do Banks create money?
10/25
Fractional-reserve banking
-a banking system in which a bank holds a fraction of deposits as reserves
- Reserve ratio
othe fraction of total deposits that a bank holds as reserves
Demonstration
-this classroom is a closed economy. I have $50,000 in currency
Money Multiplier
-the amount of deposits the banking system generates with each dollar of reserves
Money multiplier = 1 / reserve ratio
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