Unit 4; Day 3 Notes

Banks-
   A bank is a financial intermediary
   Uses liquid assets( bank deposits) to finance the investments of borrowers.
      AKA Fractional reserve banking
      a System in which depository institutions hold liquid assets less than the amount of deposits.
   Can take the form of:
      Currency in bank vaults
      Bank reserves- deposits held at the federal reserve
      T-Account (Balance sheet)
      Statements of assets and liabilities
   Assets (amount owned)
      Items which a bank holds legal claim
      The uses of funds by financial intermediaries
   Liabilities (amounts owed)
      Legal claims against a bank
      Sources of funds for financial intermediaries
Federal Reserve(FED)
   7 members appointed by president; terms are staggered
Functions-
Ctrl money supply
Issue paper currency
Set reserve requirements; holds reserves of banks
Lend money to banks; charge interest
Check clearing service for banks
Acts a personal bank for government
Supervises member banks

Reserve Requirements-
Fed requires banks to have some money readily avail for consumer.
Amount set by fed is Required Reserve Ratio (RRR)
RRR- % of demand deposits(checking account balances that must not be loaned out)
Typically 10%
Three types of Multiple deposit expansion Questions
Type 1- Calculate initial change in ER (amount of single bank can loan from initial deposit)
Type 2: Calc. change in loans in banking system
Type 3: Calc. change in money supply
Sometimes type 2 and 3 will have same result(i.e. no fed involvement)