ECON 4002.02 Study Guide - Midterm Guide: Term Auction Facility, Money Supply, Monetary Base
5 Oct 2018
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Our model of money supply will have three exogenous variables: the monetary base (b); high powered money, the reserve-to-deposit ratio, the currency-to-deposit ratio. The model: m= c+d, b= c+r, m/b = (c+d)/(c+r) =(c/d+1)/(c/d+r/d) = (cr+1)/(cr/cc, therefore: m = [(cr+1)/(cr+cc)] b = (m)b. If they want to increase the ms by , they should be how much in bonds: /cr = /1. 5 = . The fed changes the money supply by either: changing the monetary base, open-market operations, the discount rate, the term auction facility, altering the reserve-to-deposit ratio, reserve requirement. Interest rates paid on bank reserve deposits: ** if you want to increase the money supply, you need to buy bolds. For the fed to affect the reserve to deposit ratio, they must: Buy bonds, which increases reserves and allows for more loans. Measured as the percentage change in the price level. = [(p2 p1)/p1] x 100.
