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ECON 1020 (99)
Lecture 73

ECON 1020 Lecture 73: Lecture 73

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ECON 1020
Ryan A.Compton

o82 Desirable to keep reserves low o Desired reserve ratio Desired reserve ratio = chartered banks desired reserves chartered banks demanddeposit liabilities Lower the ratio = the more money you have to lend out Cash reserves Excess reserves This is the portion you are going to lend out Excess reserves = actual reserves (cash) desired reserves Desired reserves Demand deposits X desired reserve ratio Example: Demand deposits = 100,000 Actual reserves (cash on hand) = 110,000 Assume reserve ratio = 20 Excess reserves = 110,000 (100,000 X 20) = 90,000 Transaction 4: Clearing a cheque 50,000 cheque reduces reserves and demand deposits Cash reserves (asset) = 60,000 (110,000 50,000 = 60,000) o Property (asset) = 240,000 o Demand deposits (liability) = 50,000 o Capital stock (net wroth) = 250,000 Money Creating Transactions: Assume we are starting with transaction 3 (still have cash 110,000) Transaction 5a: Granting a loan 50,000 loan equal to excess reserves made and then deposited to chequing o Cash reserves (asset) = 60,000 o Loans (asset) = 50,000
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