Money And Banking - Lesson 2 - The Multiplier Coefficients And Money Supply

Front 1

Why doesn't the transfer of existing funds within the direct clearing system appear to create money or additional credit throguh the eyes of a banker?
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Back 1

because a withdrawal at one point in hte system is matched by a deposit at another point in the system, which leaves the level of funds apparently unchanged!

Front 2

If a bank keeps reserves of 10% deposited money, what happens to the other 90%?
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Back 2

The other 90% is used as loans.

Front 3

What is float?
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Back 3

Float is created when a bank has received and recorded chequs as an asset that have not been settled throguh the clearing system.

The bank on whcih the cheques are drawn also has an unsettled liability on its books.

Front 4

What is a secondary demand deposit?
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Back 4

The temporary deposit created to make the transfer of borrowed funds possible for a borrower to access.

Front 5

What is a derivative deposit?
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Back 5

Once the borrower accesses the funds in the secondary demand deposit, and writes a cheque that causess the funds to re-enter the banking system as a new deposit a derivative deposit has been created.

Front 6

What is a primary deposit?
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Back 6

A primary deposit is the original deposit upon which all subsequent rounds rest. It can result from a redeposit of cash that is currently in hand-to-hand circulation or from the activity of the Bank of Canada.

Front 7

What is the equation for the Geometric progression of the simple creation process that describes total demand deposits?
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Back 7

DD= Total Demand Deposits
TR = Total Reserves
d=Reserve Drain Percentage

DD= TR + (1-d)TR + ((1-d)^2)TR +...+ ((1-d)^n)TR

Where a progressiveley smaller sum is passed forward

Front 8

How can the bank of canada "create money" or "shrink" the money supply?"
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Back 8

When the bank aquires assets it increases it's lending capacity to other banks.

When the bank sells assets it reduces its lending capacity to banks.