Money supply process and the money multiplier

What are the Fed’s liabilities?

Currency held by the public and reserves

What makes up reserves

Bank deposits at the Fed and vault cash

What are the Fed’s assets

Govt securities and discount loans

Monetary Base Equation

M= Currency + Reserves 

What happens when the FED buys securities?

The money supply increases

What happens when the FED sells securities?

They are reducing the money supply

Who controls open market operations?

The Fed

Who controls the amount borrowed from the FED?

Banks

What is the monetary base split between?

Non Borrowed MB (MBn)= MB - BR

Does currency have multiple deposit expansion?

No because as people decide to hold more cash the money supply shrinks

What effect does excess reserves have on the money supply?

An increase in excess reserves leads to a decrease in the money supply. 

What does the Fed have control over?

Open market operations (MBn) and required reserve ratio.

What do the banks have control over?

Borrowed reserves and excess reserves

What do depositors have control over?

Currency holdings.

What is the equation for the money supply?

Money Supply(M)= money multiplier (m) x Monetary Base (MB)

What is the equation for the currency ratio?

Currency ratio ( c)= Currency (C) / Checkable Deposits (D)

What is the equation for the excess reserve ratio?

Excess reserve ratio (e)= Excess reserves (E) / Checkable Deposits (D) 

What is the equation for the money multiplier?

(c + 1) / (r + c + e)

What does an increase in reserves depend on?

Required reserve ratio, amount of excess reserves desired, and amount of currency people want to hold