ECON 1020 Lecture Notes - Lecture 74: Demand Deposit, Excess Reserves, Money Supply

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ECON 1020 Full Course Notes
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ECON 1020 Full Course Notes
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*** a single bank can only lend an amount equal to its pre-loan excess reserves. Transaction #6: bank buys government securities from a dealer (deposits payment into chequing) Cash reserves (asset) = ,000: securities (asset) = ,000, property (asset) = ,000, demand deposits (liability) = Bond purchases from the public by the chartered banks increases the money supply. Bond sales to the public decreases the money supply. When currency in circulation and/or demand deposits (m1) increases, money supply increases, and vise versa. Cash reserves are not in circulation, therefore not m1, and not apart of money supply. Banks goal is to make profit, therefore they want to lend a lot of money (interest rates increase money: liquidity. How easily assets can be turned into money. Overnight lending rate: paid on overnight loans to cover temporary shortages of reserves. This is used for banks: want to lend out as much as possible.

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