EC233 Lecture Notes - Lecture 14: Commercial Bank, United States Treasury Security, Monetary Base
Document Summary
Liabilities: currency in circulation: in the hands of the public, reserves: bank deposits at the central bank and vault cash. Assets: government securities: the central bank"s holdings of interest-earning treasury securities, discount loans: provision of reserves to commercial banks by central bank lending to them; earn the discount rate. C = currency in circulation, r = total reserves in the banking system. Securities +m reserves +m: - net result is that reserves have increased by m, - no change in currency, - monetary base has risen by m. Nonbank public: - person selling bonds to the central bank deposits the central bank"s check in their commercial bank, - as with an open market purchase from a bank, reserves are created by the transaction. Loans to financial institutions: - monetary liabilities of the federal reserve (or central bank, more generally) have increased by m, - monetary base also increases by this amount.
