ECON 102 Lecture Notes - Lecture 19: Reserve Requirement, Excess Reserves, Money Creation
Document Summary
The importance of a properly functioning financial system. High-interest-rate loans to home buyers with higher-than-average credit risk. Was promoted by government programs that encouraged home ownership. The process of slicing up and bundling groups of loans into new securities. The tendency for financial investors and financial services firms to take on greater risks because they are insured against possible losses. The creation of money is done with the help of canada"s chartered banks. A system in which only a portion of demand deposits and cash reserves is held in chartered bank vaults. By issuing loans, depositary institutions create demand deposits. Goldsmiths accepted gold deposits and issued paper receipts. Paper receipts were used as a medium of exchange. Clearing a cheque drawn against the bank. Excess reserves = ,000 - (,000 x 20%) Bond purchases from the public by the chartered banks increases the money supply. Bond sales to the public decreases the money supply.
