ECON 2030 Lecture : Econ Notes 23 Nov 15
TODAY’S MENU: Monday 23 November 2015
I. BUSINESS
A. Practice Problems
1. Chapter 30: 4, 5, 7, 9, 10, 20, 27
B. Labs do NOT meet this week
C. Final Exam: Two weeks from Wednesday, 09 December, 12:30-2:30 PM in
Cox Auditorium
II. SUBSTANCE
A. Money: How do banks create it?
1. Model: Money Supply (M1) = MB x money multiplier
a. MB = Monetary Base = bank reserves + currency in circulation
MB= currency in circulation + bank revenue
Tooth Fairy: $100 = $100 + $0
Deposit: $100 = $0 + $100
Loan: $100 = $80 + $20
Deposit: $100 = $0 + $100
Loan: $100 = $60 + $40
M1 = currency in circulation + check account deposit
Tooth Fairy: $100 = $100 + $0
Deposit: $100 = $0 + $100
Loan: $180 = $80 + $100
Deposit: $180 = $0 + $180
Loan: $240 = $60 + $180
M1= MB * Money Multiplier (>=1)
Tooth Fairy: $100 = $100 * 1
Deposit: $100 = $100 * 1
Loan: $180 = $100 *1.8
Deposit: $180 = $100 * 1.8
Loan: $240 = $100 * 2.4
2. Multiple Deposit Creation → money multiplier = take deposit and make
loans
3. Conclusions
a. More deposits, more loans, greater money supply
b. Fewer deposits, fewer loan, smaller money supply
4. Examples
Expansion → more jobs = more income, causes banks to lend more,
causes an increase in money multiplier (this causes an increase in the
growth of expansion)
Recession → less jobs = decrease in income, causes banks to lend
less, causes a decrease in the money multiplier (this causes recession to
get worse)
Document Summary
Today"s menu: monday 23 november 2015: business, practice problems, chapter 30: 4, 5, 7, 9, 10, 20, 27, labs do not meet this week, final exam: two weeks from wednesday, 09 december, 12:30-2:30 pm in. Substance: money: how do banks create it, model: money supply (m1) = mb x money multiplier, mb = monetary base = bank reserves + currency in circulation. M1 = currency in circulation + check account deposit. Loan: more deposits, more loans, greater money supply, fewer deposits, fewer loan, smaller money supply, multiple deposit creation money multiplier = take deposit and make loans, conclusions, examples.
