Class Notes (836,581)
United States (324,591)
Economics (213)
ECON-UA 1 (101)
Lecture

Lecture: 11-26-2013
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Department
Economics
Course
ECON-UA 1
Professor
Marc Lieberman
Semester
Fall

Description
 (11/26/2013)  Money Creation  We will be looking at the Balance sheet of a bank  A listing of assets and liabilities   An Asset: is anything of value owned by the bank    A Liability: is anything a bank owes  Example: Some Bank  Assets  Liabilities + Shareholder’s Equity  $25 Million property & buildings  $100 Million Checking Account Deposits  $140 Million IOUs  $57.5 Million Other Liabilities  (Borrowed funds     owed to creditors, savings accounts, CDs) $3 Million Cash in Vault  $17.5 Million Shareholder’s Equity  $7 Million in Account with Federal Reserve    ReserveTotal: $175 Million  Total: $175 Million    Shareholder’s equity = Assets – Liabilities (What shareholders/owners have at risk)  Required Reserve is a fraction of checking accounts  Fraction is “Required Reserve Ratio” (RRR)  Required reserve = (RRR)(Checking Accounts)  RRR is 0.10 in the US  Two Concerns about individual Banks & the banking system  1. Liquidity – Ability to get cash when needed quickly, easily, and at low cost  2. Solvency – A bank is solvent when its
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