EC202 1nd Edition Lecture 18Outline of Last Lecture I. MoneyOutline of Current Lecture II. Bank’s balance sheetIII. Reserve bankingIV. Fractional reserve bankingV. Money creationCurrent Lecture-bank’s balance sheet-assets: what banks own-liabilities: what banks owe-bank reserves: cash or similar assets held by commercial banks for the purpose of meeting depositor withdrawals and payments-not part of the money supply because they are not circulating-reserve banking-100 percent reserve banking: a situation in which banks’ reserves equal 100 percent of their deposits-banks realize they don’t need to, and are not required to keep 100 percent of their deposits-most of the deposits sit there-banks can keep a smaller percentage and loan the rest to earn additional income-fractional reserve banking-reserve-deposit ratio: bank reserves divided by depositsThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.-fractional-reserve banking system: a banking system in which bank reserves are less than deposits so that the reserve-deposit ratio is less than 100%-money creation: when a bank lends out reserves it creates deposits and, therefore, money-money supply = Currency held by the public + bank deposits-process of expansion of loans and deposits must end when all excess reserves are loaned out-there are no excess reserves when the reserve to deposit ratio drops to the level required by the
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