Bài giảng MicroEconomics - Chapter 032 Money Creation

MoneyCreationChapter 32McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.Chapter Objectives“Fractional Reserve” systemActual reserves vs. required reservesHow banks create money through granting loansMultiple expansion of loans and money by the banking systemThe monetary multiplier 32-2Fractional Reserve BankingThe GoldsmithsStored gold and gave a receiptReceipts used as money by publicMade loans by issuing receiptsCharacteristicsBanks create money through lendingBanks are subject to “panics” 32-3Fractional Reserve SystemBalance sheetAssets = Liabilities + Net WorthBoth sides balanceNecessary transactionsCreate a bankAccept deposits Lend excess reserves 32-4AssetsLiabilities and Net WorthCreating a BankTransaction #1Vault cash: cash held by the bankCreating a BankBalance Sheet 1: Wahoo BankCash$250,000Stock Shares$250,00032-5AssetsLiabilities and Net WorthCreating a BankTransaction #2Acquiring property and equipmentAcquiring Property and EquipmentBalance Sheet 2: Wahoo BankCash$10,000Stock Shares$250,000Property240,00032-6AssetsLiabilities and Net WorthCreating a BankTransaction #3Commercial bank functionsAccepting depositsMaking loans Accepting DepositsBalance Sheet 3: Wahoo BankCash$110,000Checkable Deposits$100,000Property240,000Stock Shares250,00032-7Creating a BankTransaction #4Depositing reserves in a Federal Reserve bankRequired reservesReserve ratioReserveratio=Commercial bank’sRequired reservesCommercial bank’sCheckable-deposit liabilities32-8Reserve RequirementsType of DepositCurrentRequirementStatutoryLimitsCheckable deposits:$0-$9.8 Million$9.3-$43.9 MillionOver $43.9 MillionNoncheckable nonpersonalsavings and time deposits 0% 310 3% 38-1400-9Fed can establish and vary reserve ratio within limits set by CongressRequired reserves help Fed control lending abilities of commercial banks32-9AssetsLiabilities and Net WorthCreating a BankDepositing Reserves at the FedBalance Sheet 4: Wahoo BankCash$0Checkable Deposits$100,000Property240,000Stock Shares250,000Reserves110,000Transaction #4Assume the bank deposits all cash on reserve at the Fed32-10Reserve RequirementsExcess reservesActual reserves - required reservesRequired reservesCheckable deposits x reserve ratioExample:Checkable deposits $100,000Reserve ratio 20%32-11AssetsLiabilities and Net WorthCreating a BankTransaction #5Clearing a check$50,000 check reduces reserves and checkable deposits Clearing a CheckBalance Sheet 5: Wahoo BankCheckable Deposits$50,000Property240,000Stock Shares250,000Reserves$60,00032-12AssetsLiabilities and Net WorthMoney Creating TransactionsTransaction #6aGranting a loan$50,000 loan deposited to checkingWhen a Loan is NegotiatedBalance Sheet 6a: Wahoo BankCheckable Deposits$100,000Property240,000Stock Shares250,000Reserves$60,000Loans50,00032-13AssetsLiabilities and Net WorthMoney Creating TransactionsTransaction #6bUsing the loan$50,000 loan cashed After a Check is Drawn on the Loan Balance Sheet 6b: Wahoo BankCheckable Deposits$50,000Property240,000Stock Shares250,000Reserves$10,000Loans50,000A single bank can only lend an amountequal to their preloan excess reserves 32-14AssetsLiabilities and Net WorthMoney Creating TransactionsTransaction #7Bank buys government securities from dealerDeposits payment into checking Buying Government SecuritiesBalance Sheet 7: Wahoo BankCheckable Deposits$100,000Property240,000Stock Shares250,000Reserves$60,000Securities50,000New money is created32-15Commercial BanksConflicting goalsEarn profitMake loans to earn interestBuy securities to earn interestMaintain liquidityAlternative?Overnight bank loansFederal funds rate32-16The Banking SystemMultiple-deposit expansionAssumptions:20% required reservesAll banks “loaned up”Banks lend all of excess reservesA $100 bill is found and depositedMultiple deposits can be created32-17Bank(1)AcquiredReservesand Deposits(2)RequiredReserves(3)ExcessReserves(1)-(2)(4)Amount Bank CanLend; New MoneyCreated = (3) Bank A $100 $20 $80 $80Bank B $80 $16 $64 $64Bank C $64 $12.80 $51.20 $51.20 Bank D $51.20 $10.24 $40.96 $40.96The process will continueThe Banking System32-18Bank ABank BBank CBank DBank EBank FBank GBank HBank IBank JBank KBank LBank MBank NOther BanksBank(1)AcquiredReservesand Deposits(2)RequiredReserves(ReserveRatio = .2)(3)ExcessReserves(1)-(2)(4)Amount Bank CanLend; New MoneyCreated = (3)$100.0080.0064.0051.2040.9632.7726.2120.9716.7813.4210.748.596.875.5021.99$20.0016.0012.8010.248.196.555.244.203.362.682.151.721.371.104.40$80.0064.0051.2040.9632.7726.2120.9716.7813.4210.748.596.875.504.4017.59$80.0064.0051.2040.9632.7726.2120.9716.7813.4210.748.596.875.504.4017.59$400.00The Banking System32-19The Monetary MultiplierMonetarymultiplier=1required reserve ratioNew Reserves$100$20RequiredReserves$80ExcessReserves$100InitialDeposit$400Bank System LendingMoney CreatedGraphicExample=1R32-20The Monetary MultiplierMaximum amount of new money created by single dollar of excess reservesHigher R, lower mReversibilityMaking loans creates moneyLoan repayment destroys money32-21Bank Panics of 1930-1933Before deposit insuranceBank failure led to mass withdrawals Forced loan reduction25-33% decline in money supply1933 national bank holiday to evaluate all banksContributed to the Great DepressionRegulation protects the system today32-22Key Termsfractional reserve banking systembalance sheetvault cashrequired reservesreserve ratioexcess reservesactual reservesFederal funds ratemonetary multiplier32-23Next Chapter PreviewInterest Ratesand MonetaryPolicy32-24