Unit 4 Notes - March 10th, 2016

Reserve Requirement

·         The FED requires banks to always have some money readily available to meet consumers’ demand for cash.

·         The amount set by the FED is the Required Reserve Ratio.

·         The RRR is the % of Demand Deposits (checking account balances) that must not be loaned out.

·         Typically RRR = 10%

The Three Types of Multiple Deposit Expansion Questions

·         Type 1: Calculate the initial change in excess reserves [AKA the amount a single bank can loan from the initial deposit.

·         Type 2: Calculate the change in loans in the banking system.

·         Type 3: Calculate the change in the money supply. [Sometimes type 2 and 3 will have the same result if there is no FED involvement.]