economics 12
money creation is the increase of money supply
money destruction is an decrease of money supply
Monetary Base (MB)
portion of the money supply that include only currency and bank reveres dose not include electronic ,digital money from the money creation process
open market operation (omo) day to day tool
the buying and selling of government securities by the central bank as a way control changes in the money supply
increase RR
the fed increase the reserve ratio -bank excess receive an decrease -PDM will decrease -Bank restrict lending -money destruction decrease the money supply
discout rate(dr)
the interest rate that central banks charge banks that borrow reserve from them
government securities
a marketable debt instrument of the us treasury (like a bond)
omo sellings
- selling bring the bonds - walk away with money -decrease ms money removed from economy -the reason they selling because they want to decrease the money supply -feds sells securites to bank by transfering money out of their resver -the buying bonds now have less in reserve - a decrease in the monetary base -decrease reserve restricted lending money out and triggering money destruction and decrease the money supply
open market operations buying
-buyers bring money -increase in ms money injected into the economy -the reasoning they buying because they want increase the money supply -the feds buy securities from banks by transfer money into their reserve -the selling banks now have more reserve - an increase in the monetary base - excess reserves are lent out triggers the money creation and increase money supply
increase dr
-decrease money supply -the fed raise the discount rate -banks borrow less in reserve -decrease in monetey base -banks restrict lending -money destruction decrease the money supply
decrease in dr
-increase money supply -banks borrow more reserve -monetary base increase -banks lend out excess reserving -money creation increase the money
decrease RR
-the feds decrease the reserve ratio -bank excess reserve increase -PDM will increase -Banks lend out excess reserve -money creation increase the money supply -higher PDM increase the money creation
reserve ratio formula
PDM=1/RR
