ECON-UA 1 Lecture 30: 30
8 Feb 2017
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1978 duel mandate two goals: price stability and full employment price stability de ned as 2% per year full employment not de ned feds main tool in stabilising macroeconomy manipulate interest rates by changing money supply. ,000 checking acc citi lends out excess reserves. Ious bank #1 actual reserves 100,000 required reserves 10,000. Excess reserves 90,000 money supply , loans r bank #2. +90,000 checking acc excess reserves that is lent out. Ious bank #2 actual reserves 90,000 required reserves 9,000. +81,000 checking acc excess reserves that is lent out. Ious bank #3 actual reserves 81,000 required reserves 8,100. Loans (ious) bank #1 bank #2 bank #3. **total money supply increases more than the initial *100,000 that the fed pays. **each time bank creates new loan, interest rate drops further. Checking accounts = money supply = ,000 + ,000 + ,900 +
