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)