Reserve Requirement
increased reserve requirement ->
banks must hold more deposits as reserves, thus reducing the amount available for loans
what happens when there's a shortage of loanable funds?
banks raise their prices (interest rate) on loans
decrease in loanable funds causes
banks to increase their interest rates, decreased borrowing and spending, economy will slow
Deposits - required reserves =
excess reserves or loanable funds
When does the fed decrease RR?
in a recession: lower RR wil inc money supply, dec interest rates, inc C and I and AD, GDP, PL, emp
When does the fed increase RR?
in an inflationary econ: banks hold more money, reducing the totable loanable funds and the money supply, causing interest rates to rise, C and I to decrease-> dec AD, GDP, PL, emp
examples of deposits
savings, checking, CDs, money markets
examples of loans
student, car, home, business, personal
Required reserves def
the amount of reserves banks must hold in their vault or with the Fed that they can't lend out (as a percent of deposits)