曼昆18.ppt

Chapter objectives Money supply how the banking system “creates” money three ways the Fed can control the money supply why the Fed can’t control it precisely Theories of money demand a portfolio theory a transactions theory: the Baumol-Tobin model Banks’ role in the money supply The money supply equals currency plus demand (checking account) deposits: M = C + D Since the money supply includes demand deposits, the banking system plays an important role. A few preliminaries Reserves (R ): the portion of deposits that banks have not lent. To a bank, liabilities include deposits, assets include reserves and outstanding loans 100-percent-reserve banking: a system in which banks hold all deposits as reserves. Fractional-reserve banking: a system in which banks hold a fraction of their deposits as reserves. SCENARIO 1: No Banks With no banks, D = 0 and M = C = $1000. SCENARIO 2: 100 Percent Reserve Banking After the deposit,  C = $0,  D = $1000,  M = $1000. 100% Reserve Banking has no impact on size of money supply. SCENARIO 3: Fractional-Reserve Banking The money supply now equals $1800: The depositor still has $1000 in demand deposits, but now the borrower holds $800 in currency. SCENARIO 3: Fractional-Reserve Banking The money supply now equals $1800: The depositor still has $1000 in demand deposits, but now the borrower holds $800 in currency. SCENARIO 3: Fractional-Reserve Banking But then Secondbank will loan 80% of this deposit and its balance sheet will look like this: SCENARIO 3: Fractional-Reserve Banking Finding the total amount of money: Original deposit = $1000 + Firstbank lending = $ 800 + Secondbank lending = $ 640 + Thirdbank lending = $ 512 + other lending… Money creation in the banking system A model of the money supply the monetary base, B = C + R controlled by the central bank the reserve-deposit ratio, rr = R/D depends on regulations bank policies the currency-deposit ratio, cr = C/D depend