Multiple Deposit Creation And The Money Supply Process357

Preview 357

Four Players in the Money Supply Process 357

The Fed's Balance Sheet 358

Liabilities 358

Assets 359

Control of the Monetary Base 359

Federal Reserve Open Market Operations 359

Shifts from Deposits into Currency 363

Box 1 Global: Foreign Exchange Rate Intervention and the Monetary Base 363

Discount Loans 364

Other Factors That Affect the Monetary Base 365

Overview of the Fed's Ability to Control the Monetary Base 365

Multiple Deposit Creation: A Simple Model 365

Deposit Creation: The Single Bank 366

Deposit Creation: The Banking System 367

Deriving the Formula for Multiple Deposit Creation 370

Critique of the Simple Model 371

Summary, Key Terms, Questions and Problems, and Web Exercises 372

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