The ability of a commercial bank to create money depends on. Creation of money by commercial banks
The ability of an individual commercial bank to create money through lending depends on the size of its excess reserves. In other words, a commercial bank can only lend an amount equal to the amount of its excess reserves. It is limited in this way because the checks drawn by the borrower are likely to be deposited with another bank, resulting in the loss of a part of the reserves and accounts credited to the bank in the amount of the loan that he issued.
The commercial banking system as a whole can lend several times its excess reserves because the banking system cannot lose reserves, although individual banks may trade off reserves to other banks in the system. Let's look at this with an example. Let's say that the gentleman of the environment has invested 1000 hryvnia in the bank. And to your current account. The cash contribution does not change the money supply. With the appearance of 1000 UAH on the current account, another 1000 UAH of cash, which was outside the banks (from Mr. Sereda), is withdrawn from circulation. If reserve requirements are 10%, then the bank. A must reserve UAH 100 for a new 1000 hryvnia deposit, and UAH 900 will be excess reserves (Table 111). A commercial bank can lend an amount equal to its excess reserves. In this case, this amount is ae 900 UAH. The borrower (bank. A) writes a check for 900 UAH and hands it over to someone who deposits this check in another bank. B. Bank. B receives 900 UAH of reserves and deposits. However, 10%, or UAH 90, of these new bank reserves. B must be kept as required reserves for 900 UAH of a new termless deposit. This means that the bank B can lend 810 UAH. Bank. B, to which the borrower of the bank can invest UAH 810. B, must keep UAH 81 in reserve, and UAH 729 can be used to provide loans. If we are more picky and involve the banks. D,. E. E. F, etc., then in the end we will see that for the main 900 UAH of excess reserves, the system of commercial banks as a whole is able to lend 9000 UAH (total of column 4 of Table 111) tsya 4 of Table. 11.1):
. Table 111. . Expansion of the money supply by the commercial banking system
| Bank | Received reserves and deposits, UAH (1) | Required reserves, UAH (2) | Excess reserves, UAH (3) = (1) - (2) | The amount that the bank can lend; money again, UAH - (4) |
| 1 | 2 | 3 | 4 | 5 |
| Jar | 1000,00 | 100,00 | 900,00 | 900,00 |
| BankB | 900,00 | 90,00 | 810,00 | 810,00 |
| BankV | 810,00 | 81,00 | 729,00 | 729,00 |
| BankG | 729,00 | 72,90 | 656,10 | 656,10 |
| Other banks | 6561,00 | 656,10 | 5904,90 | 5904,90 |
| Total amount of money created (sum of values in column 4) | 9000,00 | |||
The banking system can lend 10 times the amount if the reserve rate of 10% were the latter to be 20%, multiplier bank money would be 5, then each hryvnia of new reserves created 5 UAH of additional deposits.
The ratio of new deposits to new reserves is called the money supply multiplier:
The money multiplier means the maximum amount of money that one hryvnia of excess reserves can create at such a reserve ratio. To determine the maximum amount of money in the current account that the banking system can create based on any amount of excess reserves, it is enough to multiply the excess reserves by the money multiplier:
In our example, which we analyzed in Table 111:
9000 hryvnia = 900 hryvnia x 10
In real life, the process of creating or destroying deposits in the banking system is more complicated than in our example. If some of the increased deposits are converted into cash or individual banks hold excess reserves, then the money supply multiplier will be less than a ratio of 1 to the reserve ratio.
The need to control the money supply
The banker has two goals that contradict each other. One goal is profit. Commercial banks, like other businesses, strive for profit. Therefore, they provide loans and buy securities. These two items are fixed assets and income-generating assets for commercial banks. On the other hand, a commercial bank must strive for security. For banks, safety is provided by liquidity, in particular liquid assets such as cooking and excess reserves. Banks must ensure that depositors convert their current accounts into tax.
But it may happen that there will be more checks presented to the bank for payment than those presented for payment by itself, as a result of which there will be an outflow of reserves. Therefore, bankers seek a balance between caution and income. The compromise reached determines the relative size of income-generating assets that oppose highly liquid assets.
The ability of the banking system to create money is based on the premise that commercial banks are willing to use their ability to create money through lending, and families and businesses are willing to lend. In fact, the ability of banks to lend on the basis of excess reserves changes cyclically, and this is the reason for government control. behind the money supply in order to ensure economic stability.
When the economy is booming, it is to be hoped that the banks will extend credit to the maximum of their capacity. This is because loans are interest-bearing assets and there is little chance that borrowers will not repay the loan at this time. But the money supply significantly affects aggregate demand. By lending and thereby creating money to its maximum capacity during a prosperous period, commercial banks can contribute to excessive aggregate demand and inflation.
On the contrary, when the economy enters a depression phase, bankers hastily withdraw their loan offers, seeking safe liquidity (surplus reserves), even if this also means sacrificing potential interest income. Bankers may fear large-scale withdrawals by frightened consumers and doubt the ability of borrowers to repay loans.
It is well known that during a recession, banks can reduce the money supply by reducing lending. This opposition to the money supply tends to dampen aggregate demand and exacerbate the recession. Thus, from bankers trying to make a profit, one can expect such changes in the money supply that will increase cyclical fluctuations. Exactly because of this reason central bank must have in its order certain specific instruments designed to manage the money supply in a counter-cyclical, and not pro-cyclical direction.
A. Are the following statements true (yes, no)?
A16. The ability of a commercial bank to create money depends on the size of bank reserves.
A17. The ability of a commercial bank to create money does not depend on the propensity of the population to keep money in bank accounts.
A18. The money supply increases and decreases mainly when commercial banks expand or reduce the volume of loans issued.
A19. Withdrawing cash from current accounts increases the money supply.
A20. With a 100% reserve system, the value of the bank multiplier is zero.
A21. If the required reserve ratio is 100%, then the bank multiplier is equal to one, which means that the banking system cannot create money.
A22. Under a full reserve system, the money supply is not affected by the ratio between the amount of cash that the population keeps on hand and the amount of money in bank accounts.
A23. Banks can only create money under a fractional reserve system.
A24. With a fractional reserve system, the bank multiplier is always greater than one.
A25. If banks hold excess reserves, the amount of loans they make decreases and the money supply decreases.
A26. The bank multiplier only works if the banks use their full credit capacity and do not have excess reserves.
A27. The less money people keep in cash and more in bank accounts, the less opportunity creation of money by commercial banks.
A28. Commercial banks create money when they receive funds and deposit them into a bank account.
A29. The process of deposit expansion begins from the moment when customers return to the bank the funds taken on credit.
AZO. The bank multiplier only works if all the money is kept in bank accounts.
A31. The bank multiplier is equal to the reciprocal of the required reserves.
A32. With a reserve ratio of 25%, a commercial bank with $1,000 in deposits can only create $250 worth of new money.
AZZ. If excess reserves throughout banking system amount to 10 million dollars, and the reserve ratio is 20%, the total amount of loans can be increased by 50 million dollars.
A34. If a commercial bank fully utilizes its lending capacity, then the banking system can increase the money supply by an amount equal to the amount of loans issued, multiplied by the reciprocal of the reserve requirement.
B Choose the only correct answer.
B25. The ability of a commercial bank to create money depends on
a) the velocity of money circulation;
b) pace money issue;
c) the inclination of the population to keep money in the bank;
d) the amount of money supply;
e) All answers are correct.
B2S. If, under a 100% reservation system, a person deposits $1,000. cash, then the offer of money
a) will not change
b) increase by more than $1,000;
c) increase by less than $1,000;
d) decrease by more than $1,000;
e) decrease by more than $1,000.
B27. With a 100% reserve system, the bank multiplier is:
B2S. In modern conditions, the value of the bank multiplier:
a) less than 1;
b) is equal to 1;
c) always greater than 1;
d) greater than 0 but less than 1;
e) can take any value.
B29. The process of creating money by commercial banks begins when:
a) funds are credited to a bank account;
b) the bank provides a loan to its client;
c) the client returns the borrowed funds to the bank;
d) the client spends funds borrowed from the bank;
BZO. The bank multiplier only works if:
a) banks make full use of their credit facilities;
b) the population keeps all funds in bank accounts;
c) banks do not have excess reserves;
d) there is no correct answer.
B31. Cash withdrawal from current accounts:
a) reduces the money supply
b) increases the bank multiplier;
c) reduces the velocity of money circulation;
d) increase the money supply
d) I can't say for sure.
B32. The money supply increases if commercial banks:
a) increase their deposits with the central bank;
b) increase the volume of loans provided to households and firms;
c) increase their liabilities on current accounts by receiving cash and non-cash money from the population on deposits;
d) withdraw part of their deposits in the central bank;
e) reduce their liabilities on current accounts by paying cash or non-cash money on deposits.
BZZ. The money supply decreases if:
a) a person deposits cash into a commercial bank account;
b) a person withdraws money from his account in a commercial bank;
c) a person buys real estate abroad;
d) a person takes a loan from a commercial bank; "
e) a person buys securities.
B34. Commercial banks can create money by:
a) transfer of part of the deposits to the central bank for exchange for cash;
b) purchases of state valuable papers at the central bank;
c) transferring cash to the central bank;
d) maintaining a 100% reserve ratio;
e) issuing excess reserves on credit to its customers.
B35. If the required reserve ratio is 20%, then the presence in the banking system of excess reserves in the amount of $100. can lead to a maximum increase in the money supply by:
b) $100;
c) 300 dollars;
d) $500;
B36. If the required reserve ratio is 25%, then the bank multiplier is:
B37. If the required reserve ratio is 10% and a bank that does not have excess reserves receives a $100 deposit. from a new client, then his excess reserves will be equal to:
d) $100;
e) 1000 dollars.
B38. If a bank's required reserves are $40,000 and deposits are $200,000, then the bank multiplier is:
B39. If the bank multiplier is 8, then the required reserve ratio is:
d) I can't say for sure.
B40. If the bank multiplier is 4, and the amount of bank deposits is $100 million, then the required reserves are equal to:
a) $20 million;
b) $25 million;
c) 40 million dollars;
d) 50 million dollars;
e) 100 million dollars.
B41. If the bank multiplier is equal to 8, and the value of the bank's required reserves is $30 million, then the value of deposits is:
a) $80 million;
b) $120 million;
c) $240 million;
d) 300 million dollars;
e) 375 million dollars.
B42. If a bank, having fully used its credit capabilities, issued a loan of 24 thousand dollars, which led to an increase in the money supply by 120 thousand dollars, then the value of deposits of this bank is equal to:
a) 12 thousand dollars;
b) 24 thousand dollars;
c) 25 thousand dollars;
d) 30 thousand dollars;
e) 48 thousand dollars.
If a person withdraws his deposit for 1 thousand dollars. from Bank A and deposits this amount on a deposit in Bank B, then with a required reserve ratio of 10%, as a result of these actions, the total amount of demand deposits may change by:
a) 1 thousand dollars;
b) 9 thousand dollars;
c) 10 thousand dollars;
d) I can't say for sure.
B44. If a commercial bank has a deposit in the amount of 10 thousand dollars. and the required reserve ratio is 20%, then this deposit is able to increase the amount of loans provided by this bank by:
a) an undefined value;
b) 8 thousand dollars;
c) 10 thousand dollars;
d) 20 thousand dollars;
e) 40 thousand dollars.
B45. The depositor contributes $4,000 to a commercial bank. in cash. A commercial bank increases its required reserves by $800. and issues a loan in the amount of 2000 dollars. As a result of these operations, the money supply
a) decrease by $4,000;
b) increase by $2,000;
c) decrease by $2,000;
d) increase by $8,000;
e) increase by $10,000.
B46. A commercial bank sold $1 million worth of government bonds to its customers. and added the amount received to his reserves. The offer of money is therefore;
a) decreased by $1 million;
b) has not changed;
c) increased by $1 million;
d) increased by $1 million multiplied by the bank multiplier;
d) I can't say for sure.
B47. A commercial bank sold $500,000 worth of government bonds to the central bank. The amount paid by the central bank, the commercial bank was fully credited. The required reserve ratio is 12.5%. The money supply is therefore:
a) decreased by 500 thousand dollars;
b) has not changed;
c) increased by $500,000;
d) increased by 4,000 thousand dollars;
e) increased by 3500 thousand dollars.
B48. If the required reserve ratio is 10%, and the amount of required reserves of the bank is $50 million, then the maximum amount of loans that the entire banking system can issue is equal to:
a) $4,000 million;
b) 4500 million dollars;
c) 5000 million dollars;
d) 5500 million dollars.
B49. If in a commercial bank the amount of deposits is 20 thousand and the required reserve ratio is 25%, then the increase in the money supply of the entire banking system will be:
a) 20 thousand dollars;
b) 25 thousand dollars;
c) 40 thousand dollars;
d) 60 thousand dollars;
e) 80 thousand dollars.
B50. If as a result of issuing commercial bank loan in the amount of 40 thousand dollars. the money supply increased by $200,000, then the total amount of deposits in the entire banking system is
a) 250 thousand dollars;
b) 290 thousand dollars;
c) 300 thousand dollars;
d) 312.5 thousand dollars;
e) 400 thousand dollars.
B51. If the deposits of commercial banks amount to $60 billion, the banks fully use their lending capacity, and the bank multiplier is 3, then the money supply will be equal to: a) $20 billion;
b) $60 billion;
c) $63 billion;
d) $120 billion;
e) 180 billion dollars.
B52. According to the following bank balance
the maximum amount of new credit that this bank can provide with a required reserve ratio of 10% will be:
b) 50 thousand dollars;
c) 150 thousand dollars;
d) 500 thousand dollars;
e) 1000 thousand dollars.
B53. If the required reserve ratio is 30% and the banking system has excess reserves of $15 million, then the banking system can increase the money supply to the maximum extent by:
b) $10.5 million;
c) 15 million dollars;
d) 35 million dollars;
e) 50 million dollars.
B54. If the total amount of current deposits in a bank is $200 million, its actual reserves are $36 million, and the required reserve ratio is 12.5%, then the amount of loans that the bank and the banking system as a whole can issue additionally under these conditions are respectively:
a) 12.5 and 25 million dollars;
b) 3.6 and 164 million dollars;
c) 25 and 36 million dollars;
d) 11 and 88 million dollars.
B55. If the reserve ratio is 25% and people reduce the amount of cash they have on hand by $100 million by putting that money in the bank, then:
a) thanks to the action of the deposit multiplier, the population will become richer;
b) the value of loans may increase by $40 million;
c) the value of deposits and loans may increase by $40 million;
d) the value of loans may increase by $300 million;
e) the value of deposits and loans may increase by $400 million.
B56. If people increase their desire to keep money in the form of cash, then banks:
a) the opportunity to reduce unemployment will increase;
b) the opportunity to reduce aggregate supply will increase;
c) the ability to reduce aggregate supply will decrease;
d) the ability to issue loans will increase;
e) the ability to issue loans will decrease.
Solve problems
G1. Deposits of commercial banks amount to 3,000 million dollars. The amount of required reserves - 600 million dollars. If the central bank lowers the reserve ratio by 5 percentage points, how much can the money supply change if the banking system uses its full credit capacity? How will the bank multiplier change?
G2. Bank deposits amount to 500 thousand dollars. Required reserves are equal to 50 thousand dollars. How will the bank's credit capabilities and the money supply from the entire banking system change if the depositor withdraws $20,000 from the account? to buy a new car?
GZ. The value of commercial bank deposits increased by 60 thousand dollars. The required reserve ratio is 20%. Determine the lending capacity of this bank and the banking system as a whole. How has the total amount of deposits of the entire banking system changed?
G4. Bank deposits amount to 350 thousand dollars. Mandatory reserves of the bank - 70 thousand dollars. Excess reserves of the bank - 30 thousand dollars. What are the bank's actual reserves? How many loans has the bank already issued? How will the money supply change if the bank fully uses its credit facilities?
G5. The banking multiplier is 5. The maximum additional amount of money that the banking system can create is $40 million. Determine the reserve ratio and the amount of loans issued by banks. How will the money supply in the economy change if the reserve requirement ratio increases by 5 percentage points?
GB. The required reserve ratio is 12%. The value of commercial bank deposits -- 20 thousand dollars. The bank can issue loans of no more than 16.8 thousand dollars. What is the bank's excess reserves as a percentage of deposits?
G7. Bank deposits amount to 200 thousand dollars. The actual reserves of the bank - 100 thousand dollars. The required reserve ratio is 20%. What are the bank's lending options? What is the amount of excess reserves? What are the possibilities of the entire banking system to increase the money supply additionally?
G8. The value of commercial bank deposits is 40 thousand dollars. The required reserve ratio is 12.5%, excess reserves are 5% of the amount of deposits. Determine the lending capacity of this bank and the banking system as a whole.
Back forward
Attention! The slide preview is for informational purposes only and may not represent the full extent of the presentation. If you are interested in this work, please download the full version.
Lesson objectives.
Educational:
Define the main functions of the Central Bank;
Find out the functions of commercial banks;
Talk about ways to attract money to banks;
Explain what a current account, term deposit is;
Show that the fee for a loan depends on many factors (on the loan amount, term, riskiness of investments, etc.);
Consider what bank reserves are, what they are for, how they affect the ability of banks to make money;
Find out what the deposit expansion multiplier is, that is, how banks can increase the amount of money in the economy.
Developing:
Be able to analyze information;
Be able to rank information according to the degree of importance;
Teach the skills of argumentation of conclusions;
In game moments, teach communication skills.
Educational:
Develop the skill of analytical work;
To develop responsibility for one's own decisions;
Teach how to obtain economic information.
Type of lesson: learning new material.
Equipment: a computer and a multimedia projector for showing a presentation, materials for each student (tests) and the text of the task, tablets with terms.
Basic concepts: bank, deposit, loan, lender, borrower, loan agreement, refinancing rate, passive operations banks, active operations of banks, margin, demand deposit, term deposit, credit emission, required reserve, deposit multiplier, deposit expansion multiplier (hand out appendix 1 to students).
During the classes.
I. Organizational moment.
The teacher greets the students and introduces them to the tasks and the lesson plan (slide 2 and 4).
II. Repetition of the studied material.
There are two options to choose from.
The first option consists of two blocks.
1 block: questions to the class:
What is money?
Name the functions of money;
What is the money supply, what is its structure?
How much money does the country need?
The second option is the game "Apiary" (description of the game in Appendix 3), (slide 3).
III. Studying new material according to the plan (slide 4).
1. Money heart of the market.
2. The Central Bank and its functions.
3. Commercial banks and its functions.;
4. Spend today - pay tomorrow.
5. How banks create money.
Epigraph to the lesson (slide 5):
“Since the beginning of time, mankind has made three great discoveries: fire, the wheel, and the central banking system.”
Will Rogers (1879-1935)
Introductory word of the teacher . The banking system is compared to the circulatory system of the human body. It is so important for the economy of the state. Indeed, in the modern economy, banks play a key role. They were able to achieve this thanks to the fact that they learned ... create money! No, we are not talking about printing paper money and minting metal coins. There is just nothing complicated about this. We will talk about what seems to people unfamiliar with economics, magic or fraud. The conversation will be about how banks manage legally, without printing money, to increase the money supply and, on this basis, regulate the entire economic life.
1. Money heart of the market. Banks are financial intermediaries, because, on the one hand, they accept deposits (deposits), attracting money from depositors, and on the other hand, they provide them at a certain percentage to various economic agents (firms, households, etc.), i.e. issue loans. Thus, banks are intermediaries in the loan. Therefore, the banking system is part of the credit system (slide 6).
Until 1989, there was a three-tier banking system. The first level - the State Bank of the USSR, the second - Specialized banks (Promstroybank, Agrobank, Zhilsotsbank, Sberbank, Vnesheconombank), the third - branches of specialized banks, about 6000 (slide 7).
The modern banking system has two levels. The first level is the Central Bank. The second level is the system of commercial banks (slide 8).
2. Central Bank and its functions (slide 9). The central bank is main bank countries. The Central Bank performs the following functions, being:
The issuing center of the country (has a monopoly right to issue banknotes, which provides it with constant liquidity. The money of the Central Bank consists of cash (banknotes and coins) and non-cash money (accounts of commercial banks in the Central Bank);
Government banker (serves the financial operations of the government, mediates payments to the treasury and lends to the state. The treasury stores free cash resources in the Central Bank in the form of deposits, and, in turn, the Central Bank gives the treasury all its profits in excess of a certain, predetermined rate);
Bank of banks (commercial banks are clients of the central bank, which keeps their required reserves, which allows them to control and coordinate their domestic and foreign activities, acts as a lender of last resort for struggling commercial banks, providing them with credit support by issuing money or selling securities);
Interbank Settlement Center;
The custodian of the country's gold and foreign exchange reserves (serves the country's international financial transactions and controls the state of the balance of payments, acts as a buyer and seller in international currency markets);
The Central Bank determines and implements monetary (monetary) policy.
3. Types of commercial banks and their functions. The second level of the banking system is made up of commercial banks. There are: 1) universal commercial banks; 2) specialized commercial banks. Banks can specialize: 1) by purpose: investment (lending investment projects), innovative (issuing loans for the development of scientific and technological progress), mortgage (carrying out lending secured by real estate); 2) by industry: construction, agriculture, foreign trade; 3) by customers: serving only firms, serving only the population, etc. (slide 10).
Modern banks perform the most important functions (slide 11):
Acceptance and storage of any types of financial assets;
Implementation of credit operations;
Creation of money;
Organization of settlements;
Buying and selling securities.
Commercial banks are private organizations that have the legal right to raise free cash and make loans for profit. Operations performed by banks are divided into active and passive. Active - these are operations for the profitable placement of funds (the bank gives loans, buys securities, etc.). Passive - these are operations to attract funds from clients to their accounts (opens deposits, accepts deposits, etc.). Everything that the bank has for its activities is assets, and the sources of bank funds (loans) are liabilities (slide 12).
The main part of the income of a commercial bank is the difference between interest on loans and interest on deposits (deposits), which is called MARGIN (slide 13). Part of the income goes to pay the bank's expenses, which include the salary of bank employees, the cost of equipment, the use of computers, cash registers, rent of premises, etc. The amount remaining after these payments is the bank's profit, dividends are accrued from it to the holders of the bank's shares, and a certain part can be used to expand the bank's activities.
4. Spend today - pay tomorrow. People are always short of money. It can be considered an axiom. Therefore, banks, in addition to storing money and servicing settlements, are also engaged in lending. Lending - granting to a person in need of money the right to carry out his expenses at the expense of the bank, subject to guaranteed reimbursement to the bank of the amounts spent and payment of a fee for use bank funds (slide 14).
The bank is the owner of only that small part of the money it has, which were invested in its creation by the founders (owners). This money is the authorized capital (fund) of the bank, which is needed only to organize the work of the bank and ensure its obligations to depositors.
For example, if I want to open my own bank tomorrow, I will need at least 180 million rubles, which should become the basis of the statutory fund. Also, to carry out banking activities, it is necessary to obtain an appropriate license from the Central Bank.
If the bank plans to work with deposits from the public, then it must become a member of the mandatory insurance system that guarantees the return of up to 700 thousand rubles to the bank's customers. These mechanisms are a guarantee of the reliability of the financial structure.
So, the source of the main resources of the bank are own funds, household deposits, accounts legal entities and loans from the Central Bank, issued at a refinancing rate of 7.75% per annum.
Question: What can happen if all depositors come to the bank at the same time demanding to return their money? - A similar situation, called "raids of depositors" poses a great danger to banks, as it casts doubt on the bank's solvency. Banks must always be ready to pay money to a depositor who demands it. Therefore, banks do not lend out all the money, but keep part of it as reserves.
The Central Bank sets a certain minimum percentage of the value of certain categories of deposits, which fixes the amount Money, obligatory for storage by each commercial bank in the form mandatory reserve deposits at the Central Bank. Required reserves are part of the amount of deposits that commercial banks are required to keep in the form of interest-free deposits with the Central Bank. Mandatory reserve requirements are used by the Central Bank for deposit insurance, for interbank settlements and for regulating the activities of the credit and banking system. By changing the required reserve ratio, the Central Bank can change the value of the money supply in the economy. The higher the Central Bank sets the required reserve ratio, the less the share of funds can be used by commercial banks for credit operations. An increase in the required reserve ratio reduces the money multiplier and leads to a reduction in the money supply.
As noted above, the main function of the bank is the issuance of loans. Interest rates of various banks range from 10 to 50% per annum. Now guess where the money from the bank?
Consider an example. A certain bank attracted 1 million rubles. from deposits from the population at 6% per annum and took 1 million rubles. from the Central Bank at 7.75%. Thus, in 1 year he needs to return 1.06 million rubles. population and 1.0775 million rubles. Central Bank. Then this institution gives these 2 million rubles. on various loans at 25% per annum. A year later, he receives 2.5 million rubles, of which we give 1.06 to the population, and 1.0775 million rubles. to the Central Bank. Total bank has a net income equal to 362,500 rubles. And now multiply this amount by hundreds or thousands of times - and this will turn out to be the income of an average bank.
Meanwhile, banks earn not only by issuing loans, but also receive interest for servicing accounts and plastic cards, currency exchange, Money transfers, collection (transportation of money), etc. All this brings the bankers a lot of money. That is why the banking system in Russia is developing by leaps and bounds and today there are about a thousand banks in our country.
This is the process of deposit expansion (slide 19). If money does not leave the banking sector and settle with economic agents in the form of cash, and banks will fully use their credit capabilities, then the total amount of money (the total amount of bank deposits 1, 2, 3, 4, 5, etc.) , created by commercial banks, will be:
M \u003d D I + D P + D W + D IV + D V + ... \u003d 1000 + 800 + 640 + 512 + 409.6 + 327.68 + ...
Thus, we have obtained the sum of an infinitely decreasing geometric progression with a base (1-rr), those. values less than 1. In general terms, this sum will be equal to
M \u003d D x 1 / (1 - (1 - rr)) \u003d D x 1 / rr; In our case: M \u003d 1000 x 1 / 0.2 \u003d 1000 x 5 \u003d 5000
Value 1/rr is called the bank (or credit, or deposit) multiplier. Another name for it is the deposit expansion multiplier. All these terms mean the same thing, namely: if the deposits of commercial banks increase, then the money supply increases to a greater extent. The deposit expansion multiplier shows how many times banks can increase the money supply compared to the amount of cash. It is determined by dividing 100 by the reserve requirement rate set by the country's Central Bank. For example, at a rate of 20%, the multiplier will be equal to 100:20=5, that is, the money supply can increase 5 times without jeopardizing the liquidity of all banks in the country.
Using the bank multiplier, you can calculate not only the amount of money supply (M), but also its change (M). The money supply as a result of the process of deposit expansion increased by 4,000 rubles (M = 5000 - 1000 = 4000), those. commercial banks have created money for this amount. This was the result of their lending out their excess reserves. It can be calculated using the formula (slide 20):
M \u003d 800 x (1 / 0.2) \u003d 800 x 5 \u003d 4000
Thus, the change in the money supply depends on two factors:
1) the amount of reserves of commercial banks issued on credit,
2) the value of the banking (deposit) multiplier.
Influencing one of these factors or both factors, the Central Bank can change the value of the money supply, pursuing a monetary (credit and monetary) policy.
The multiplier works in both directions. The money supply increases as money enters the banking system (increases in deposits) and decreases as money leaves the banking system (i.e., withdrawn from deposits). And since, as a rule, in the economy, money is both invested in banks and withdrawn from accounts, the money supply cannot change significantly. Such a change can only occur if the Central Bank changes the required reserve ratio, which will affect the lending capacity of banks and the value of the bank multiplier. It is no coincidence that this is one of the important instruments of monetary policy (policy to regulate the money supply) of the Central Bank.
It is necessary to clearly distinguish between the deposit expansion multiplier (1:R) and money multiplier. Understanding this difference is related to the concept of money supply. To determine the money supply, we must know what the monetary base is and what the money multiplier is. The monetary base is the sum of bank reserves and cash in the hands of the population. This is the amount of funds that can be used by the banking system to expand the money supply. And the money multiplier is the degree of expansion of the money supply in comparison with the monetary base. Once we know the monetary base and the money multiplier, we can measure the money supply. The monetary base includes all cash issued by the Central Bank. Part of the cash is used by the population, part is kept in banks. But another part of the cash returns to the Central Bank in the form of reserve accounts of commercial banks.
The ratio between the money supply and the monetary base is called the money multiplier. If the Central Bank knows the value of the money multiplier, then it easily predicts the amount of change in the money supply in the event of arbitrary changes in the monetary base. The money multiplier determines how the decisions of the Central Bank will affect the money supply.
The results of the study of the topic ( slides 21 and 22).
1. Banks do business and earn profits. They provide depositors with the safety of their money, checking services for their deposits. Banks provide loans and guarantee the stability of the payment system. They minimize the cost of finding loans, take the risk cash transactions and offer clients highly liquid funds for investment.
2. Commercial banks are required to hold reserves as part of their deposits in case of significant withdrawals. Commercial banks use balance sheets to control their operations, which provide information on the movement of assets, liabilities and equity of the bank.
3. The most important link in the banking system is the Central Bank. It is the bank of the government. The main function of the Central Bank is to ensure three main macroeconomic objectives: sustainable economic growth, high employment and, especially, a stable price level. The Central Bank sets the required reserve ratio, controls the activities of commercial banks and other financial intermediaries, and issues fiat money.
4. The central bank, as a rule, has a significant degree of independence. The facts show that the higher the independence of the Central Bank, the lower the inflation rate in a given country.
5. Acting jointly, commercial banks carry out credit operations using excess reserves. Credit expansion of banks depends on the value of the deposit expansion multiplier. The value of the multiplier is influenced by the reserve ratio, the conversion of a part of the check turnover into cash and the desire of many banks to keep the volume of reserves above the required norm.
Anchoring (side 23).
I. 1. Why is it more profitable to invest your savings in a bank than to keep them at home?
2. What are the types of deposits?
3. What are the basic principles of lending?
II. Solve the problem ( slides 24 and 25):
Calculate how the loan interest on a loan of 120 thousand rubles will change if the interest rate has increased from 12 to 14%.
Homework: homework is given to students of two levels to choose from (slide 26):
Level 1 (on “4”):
Textbook Lipsitsa I.V. “Economics”, part 2, paragraph 27, p. 193-201;
Home test.
Level 2 (on “5”): in addition to tasks of level 1, make a crossword puzzle on the terms of the topic.
References
1. Zubko N.M., Zubko A.N. A practical guide to economic theory. - Minsk: STC "API", 1999.
2. Kazakov A.P., Minaeva N.V. Economy. Lecture course. Exercises. Tests and trainings. - M .: Publishing house of TsIPKK AP, 1996.
3. Kazakov A.P. Shkolnik about the market economy - M.: Gnom-press, 1997.
4. Kireev A.P. Economics: Textbook for 10-11 cells. – M.: Vita-Press, 2008.
5. Lipsits I.V., Lyubimov L.L., Antonova L.V. Revealing the secrets of the economy. Moscow: Vita-Press, 1994.
6. Lyubimov L.L., Ranneva N.A. Principles of Economics: - M.: Vita-Press, 1995.
7. Lipsits I.V. Economy without secrets. – M.: Delo, 1993.
8. Lipsits I.V. Economics: Textbook for 10-11 cells. In 2 books. Book. 2. - M.: Vita-Press, 2007.
9. Basics market economy. Workbook edited by Professor Tretyakov P.I., Tverskoy S.A. - M.: Culture, 1994;
10. Savitskaya E.V., Seregina S.F. Economics lessons at school: In 2 books. Book. 2: Teacher's guide. – M.: Vita-Press, 1999;
11. Economics for schoolchildren. Educational and methodical manual for the teacher, edited by Avtonomova V,S, Azimova L.B. – M.: Open society, 1995.
When you find yourself in Washington, DC, do not deny yourself the pleasure of looking at the United States Mint - a place where more than 25 million dollars are minted daily. in Federal Reserve Notes, which are printed on large sheets of paper that pass through a printing press. After the machine cuts these sheets into individual bank notes, employees send them to 12 Federal Reserve Banks for wide distribution.
We are all fascinated by large amounts of money. However, in most transactions, we do not use cash, but checks, that is, current accounts in commercial banks and savings institutions. The volume of these deposits is much larger than the amount of cash kept in banks. Who creates these contributions? Authorized commercial banks responsible for issuing loans. How do they do it? With computers and printers. Doesn't that sound like a 60 Minutes report that needs a congressional investigation. But in fact, banking authorities are well aware that banks and savings institutions do create money in the form of checkable deposits. In fact, the Federal Reserve trusts these institutions to form a significant part of the money supply in the country.
Since the majority of all checkable deposits are commercial bank demand deposits, this chapter will try to understand how commercial banks can create deposit money. In particular, we will describe and compare the possibilities of creating money available to: 1) an individual commercial bank as one of the components of a system consisting of many banks; 2) the system of commercial banks as a whole. Throughout this chapter, you must remember that savings institutions also open checking accounts, so when we use the term "commercial bank" we mean "deposit-taking institution" in general. Similarly, the term "checking deposit" can be replaced by the term "termless deposit" ("demand deposit").
Balance sheet of a commercial bank
Understanding the main elements of a commercial bank balance sheet and how these elements change with different transactions will provide us with a valuable analytical tool for studying the operation of the monetary and banking systems.
The balance sheet (balance sheet) is a list of the company's assets and claims to it - in this case we are talking about a commercial bank - which gives a generalized picture of its financial position at some specific point in time. In any balance sheet, a balance must be observed, since for every known asset, which is something that has economic value (value), someone will certainly make a claim. Can you imagine an asset—something with monetary value—that no one needs or wants? In the balance sheet, a balance (equilibrium) is observed, since the value of assets is equal to the totality of claims made on them. The claims shown on the balance sheet are divided into two groups: the claims made by the owners of the firm on its assets, called equity, and the claims of non-owners, called liabilities. Thus, we can say that the balance sheet is in balance, because:
Assets = Liabilities + Equity.
Studying the ability of commercial banks to create money from their balance sheet is very valuable for two reasons.
1. The balance sheet of a bank gives us a starting point from which we can introduce new terms in a more or less systematic manner.
2. The use of balance sheets allows us to quantify some of the most important concepts and relationships, the understanding of which causes difficulties if described only in words.
Prologue: Goldsmith
Let's use balance sheets to understand how the fractional reserve banking system works. Character traits and the functions of this system are easier to imagine using short excursion in economic history.
When our distant ancestors began to use gold to carry out transactions, it became obvious that it was inconvenient and unsafe for both buyers and traders to transport, weigh and check for purity of gold every time a transaction was concluded. Therefore, it became a practice to give gold for storage to goldsmiths who had cellars or special storerooms and were ready to provide them at the disposal of clients for a fee. Having received a gold deposit, the goldsmith issued a receipt to the depositor. Goods soon began to be exchanged for receipts from goldsmiths, and such receipts evolved into an early form of paper money.
At the same time, goldsmiths - in fact the prototype of bankers - used a 100% reserve system, that is, their paper money (receipts), which were in circulation, was fully backed by gold. But, seeing the readiness of people to accept receipts as paper money, goldsmiths began to realize that the gold they kept was rarely claimed. In practice, they found that the amount of gold that people deposited with them weekly or monthly exceeded the amount of gold withdrawn.
At one point, some smart goldsmith came up with the idea that paper money could be issued in a larger volume compared to the amount of gold available. He began to direct this excess paper money (receipts for the withdrawal of gold) into circulation, issuing loans at interest to merchants, producers and consumers. Borrowers readily agreed to borrow these receipts for gold simply because they were widely accepted as a medium of exchange.
This is how fractional reserve banking was born. If, for example, our resourceful goldsmith were to lend out sums equal to the amount of gold in his custody, then the total value of paper money in circulation would be twice the value of gold, and the reserves would be 50% of the value of the issued paper money.
The fractional reserve banking system that operates in modern society has two important features.
1. Money creation and reserves. In such a system, banks have the ability to create money. When a goldsmith lent paper money that was not fully backed by gold reserves, money was created. Of course, the amount of this money that the goldsmith could create depended on the size of the reserve, which he considered prudent to keep on hand. The smaller the reserve he considered expedient, the more money he could create.
Although gold is no longer used to "support" the money supply (Chapter 13, Money and Banking), bank lending (money creation) is today limited to the amount of reserves that a bank deems necessary or, under current regulations, is required to hold.
2. Banking panic and regulation. Banks operating on fractional reserves are vulnerable to banking panics, or “demand surges”. Our goldsmith, who has issued paper money worth twice the value of the gold reserve, of course, will not be able to turn all this money into gold if suddenly all the holders of paper money demand to be exchanged for gold at the same time. Many European and American banks really collapsed literally on the same day precisely as a result of such an unfavorable combination of circumstances. But at the same time, a banking panic is very unlikely if the bank keeps reserves of a reasonable size and conducts a cautious credit policy. Indeed, the main reason and purpose of the strict regulation of the banking system is to prevent an influx of claims on banks. In addition, it is for this reason and for this purpose that the deposit insurance system operates in the United States (see Chapter 13).
Separate commercial bank
Now we need to understand how an individual bank, which is part of a system of many banks, creates money. What items does the balance sheet of a commercial bank consist of? How does an individual commercial bank create money? If he can create money, can he destroy it? What factors dictate how banks create money?
The structure of a commercial bank
To answer these questions, you need to know the content and structure of the balance sheet of a commercial bank and understand how specific transactions are reflected in it. To begin with, let's turn to the organization of a local commercial bank.
Deal 1: the birth of the bank. Suppose a few savvy residents of Wahoo, Nebraska (yes, there is such a place on earth) decide that the city needs a new commercial bank to provide banking services to a growing population. Suppose these enterprising people were able to register their bank with the state or federal government and receive the status of a state or federal bank, respectively. national bank. They then proceeded to sell shares for, say, $250,000. customers both among the population of the city and outside it. These financial efforts have been successful. The Wahoo Merchant and Farmers Bank now exists - at least on paper. How will the birth of a bank appear on its balance sheet?
The owners of the new bank put its shares for sale in the amount of 250 thousand dollars. They bought part of the shares themselves, and sold the other part to various people. As a result, the bank now has $250,000 on hand. cash and sold shares worth 250 thousand dollars. Naturally, cash is an asset of the bank. Cash held by a bank is sometimes referred to as cash on hand or cash on hand. Meanwhile, the sold shares make up the same amount of claims made by the owners to the bank's assets. The shares are the bank's equity and make up its net worth, although for the shareholders they are assets. At the moment, the balance sheet of the bank looks like this:
When a commercial bank buys government bonds from the public, essentially the same effect occurs as when lending. New money is being created.
Suppose that Wahoo Bank's balance sheet was originally as it was at the end of trade 5. Now suppose that instead of lending $50,000, the bank buys $50,000 worth of securities from a dealer. The bank receives interest-bearing bonds at its disposal, as a result of which a new asset item "Securities" appears in its balance sheet and the dealer's current account increases. Wahoo Bank's balance sheet now looks like this:
Perpetual deposits, and hence the money supply, increased by $50,000, as in transaction 6. The purchase of bonds by commercial banks from the public increases the money supply in the same way as lending to the public. The bank accepts government bonds, which are not money, and increases the dealer's current accounts, which are money.
Of course, when a securities dealer writes and presents a check for $50,000 to Wahoo Bank, the bank loses both reserves and deposits for that amount, so it must comply with statutory reserve requirements. His balance sheet will now look exactly like Statement 6b, with one exception: in the assets column, the item "Loans" is replaced by the item "Securities".
Finally, the sale of government bonds by a commercial bank to the public—like paying back a loan—reduces the money supply. The buyer of securities pays by check, and both items - both "Securities" and "Perpetual deposits" (the latter being money) - are reduced by the amount of the sale.
Profits, liquidity and the federal financial market
The asset structure on a commercial bank's balance sheet reflects the fact that the banker has two opposing goals.
Other exemptions. In addition to the withdrawal of required reserves at each stage of the lending process, two other withdrawals of money from commercial banks are possible, which reduce the ability of the banking system to create money.
1. Leakage of cash. The borrower may require that part of the loan be paid to him in cash. Or, the recipient of a check drawn by a borrower may present it to the bank for partial or full cash payment, instead of adding it to the borrower's account. So, if in our example a person who borrowed 80 dollars. in bank A, asks to give him 16 dollars. cash, and the remaining 64 dollars. put into a checking account, Bank B will receive only $64. new reserves (of which only $51.20 would be surplus) rather than $80. new (and $64 excess) reserves. Such a reduction in excess reserves consequently lowers the credit potential of the banking system. In fact, if the first borrower took all 80 dollars. cash and this cash remained in circulation, the process of multiple increase would immediately stop. But the convenience and security of checking accounts make that turn of events unlikely.
2. Excess reserves. Our analysis of the ability of the commercial banking system to increase the money supply through lending was based on the assumption that commercial banks are prepared to strictly comply with statutory reserve requirements. The more excess reserves the bankers hold, the less cumulative potential banking system to expand credit . For example, let's say that bank A, having received 100 dollars. new cash, decided to add $25 to his reserves rather than the legal minimum of $20. Then he will lend only $75. instead of 80 dollars. and the money multiplier will decrease accordingly. In fact, banks have kept minimal reserves in recent years. The explanation for this is very simple: excess reserves do not bring interest to the bank, but loans and investments do. So our assumption that the bank will lend as much money as its excess reserves is reasonable and generally quite accurate.
Brief recap 14-3
- While an individual bank in a system of many banks can safely lend (create) only as much money as its excess reserves, the banking system can lend (create) money many times its excess reserves.
- The money multiplier is inversely proportional to the required reserve ratio and indicates how many times the banking system is able to increase the money supply per dollar of excess reserves.
- Leaking cash and the desire of banks to hold excess reserves can reduce the value of the money multiplier.
The need for monetary control
Our description of the banking system's ability to create money rests on the premise that commercial banks are willing to create money by lending and households and firms are willing to borrow. In fact, the willingness of banks to lend on the basis of excess reserves is subject to cyclical fluctuations, and this is the reason for government control over the money supply for the sake of economic stability.
When prosperity reigns, banks expand credit to the maximum of their capacity. Loans are interest-bearing assets, and in good times there is little risk of borrowers defaulting. But, as we will see in Chapters 15 The Federal Reserve Banks and Monetary Policy and 16 Perspectives on Macroeconomic Theory and Policy, the money supply has a significant impact on aggregate demand. By lending money and thereby creating as much money as they can, commercial banks during periods of prosperity can create excessive aggregate demand and inflation.
When clouds of depression and recession gather on the economic horizon, bankers hastily withdraw their loan offers, seeking safe liquidity (surplus reserves), even if this means sacrificing potential interest income. During such periods, bankers fear a mass withdrawal of deposits by a panicked population and, moreover, doubt the ability of borrowers to repay their debts. Not surprisingly, during the Great Depression of the 1930s, banks held large excess reserves, but lending was in deep decline. Thus, in times of recession, banks are able to reduce the money supply by restricting lending. This contraction in the money supply holds back aggregate demand and exacerbates the recession. The rapid decline in the money supply was one of the factors that caused the Great Depression of the 30s (see).
Our final conclusion is that profit-seeking bankers can be expected to change the money supply in ways that amplify cyclical fluctuations. It is for this reason that the Federal Reserve System needs to have certain policy tools at its disposal to manage the money supply in a counter-cyclical rather than a pro-cyclical direction. We turn to an analysis of these policy instruments in Chapter 15.
- To understand the operations of a commercial bank, its balance sheet helps, in which assets are equal to liabilities and equity.
- The modern banking system relies on fractional reserves.
- Commercial banks are required to hold statutory reserves in the form of deposits with the Federal Reserve Bank or in the form of cash on hand. These reserves are equal to a certain percentage of the commercial bank's liabilities for termless deposits. Excess reserves are equal to actual reserves minus required reserves.
- Banks lose both reserves and demand deposits when checks are drawn on them.
- When commercial banks make loans, they create money, that is, demand deposits, or bank money. Creation of checking deposits through bank lending is the most important source of money in the US economy. Money is destroyed when loans are repaid.
- The ability of an individual commercial bank to create money by making loans depends on the size of its excess reserves. Generally speaking, a commercial bank can only lend an amount equal to the amount of its excess reserves. Thus, its ability to create money is limited, since the checks drawn by the borrower are likely to be deposited in another bank, causing the borrowing bank to lose reserves and deposits in the amount of the loan it has issued.
- Banks may choose to purchase government bonds from the public rather than using excess reserves to make loans. At the same time, banks simply lend to bond sellers by opening current accounts for them and thus creating deposit money. When banks sell bonds to the public, the money is destroyed because the buyers must use their checking accounts to pay for the bonds.
- By lending and buying bonds, banks generate interest income, and by holding cash and excess reserves, they maintain liquidity. Banks with a temporary excess of reserves often use this to provide overnight loans to other banks experiencing a shortage of required reserves. The interest rate on such loans in the federal financial market is called interest rate for federal funds.
- The commercial banking system as a whole is capable of lending many times its excess reserves, because the banking system cannot lose reserves, although individual banks may cede reserves to other banks in the system.
- The value indicating how many times more the banking system is able to lend per dollar of excess reserves is inversely proportional to the reserve ratio. The process of multiple expansion of lending is reversible.
- The fact that profit-seeking banks change the money supply in a pro-cyclical direction makes it necessary for the Fed to control the money supply.
Banking panic of 1930-1933
The wave of banking panic that swept across the United States in 1930-1933 led to a multiple reduction in the money supply in the country.
In the very first months of the Great Depression, several weak and unstable in their own way went bankrupt. financial condition banks. Rumors immediately spread that the customers of these banks had lost all their uninsured deposits, and then many were worried that something similar would happen to other banks. As a result, depositors began to withdraw their funds (withdraw cash from their accounts) from local banks, most of which were occupied by quite a solid financial position. In economists' terms, the initial bankruptcies had negative side effects, or spillover costs (see Chapter 5), affecting the thriving banks. For 3 years, more than 9 thousand banks crashed.
The massive conversion of checking deposits into cash, which swept the country in 1930-1933, led to a reduction in the money supply in the economy. The outflow of cash from banks meant for them the loss of reserves and a multiple decrease in the volume of loans and checking deposits. In addition, banks, in pursuit of liquidity that would enable them to cope with further withdrawals, began to call back their loans and sell government securities to the public. Thanks to these measures, banks were able to increase their excess reserves, that is, reserves that were not lent out. The loss of deposits (reserves) and the insatiable desire for liquidity, reversing the expansion of the money supply (shown in Figure 14-2), undermined the money supply.
In 1933, President Franklin Roosevelt ended the banking panic by proclaiming a "National Bank Holiday," which began with all banks closed for a week and culminated in the federal deposit insurance program. And yet the money supply in the economy shrank by 25%. This deepest decline in the money supply in American history was one of the causes of the worst and longest depression in the country.
Today, such a huge reduction in the money supply, such as occurred in 1930-1933, is simply unthinkable. Thanks to FDIC guarantees, the failure of an individual bank does not develop into a general banking panic. In addition, if during the banking panic of 1930-1933. The Fed remained inactive, today it would immediately take measures to maintain the reserves of the banking system and the level of money supply in the country. It is these Fed measures that will be the subject of our discussion in Chapter 15.
a) the velocity of money circulation;
b) the rate of money emission;
c) the inclination of the population to keep money in the bank;
d) the amount of money supply;
e) All answers are correct.
26. If, under a 100% reservation system, a person deposits 1000 dollars. cash, then the offer of money
a) will not change
b) increased by more than $1,000;
c) increase by less than $1,000;
d) decrease by more than $1,000;
e) decrease by less than $1,000.
27. With a 100% reserve system, the bank multiplier is equal to:
28. In modern conditions, the value of the bank multiplier:
a) less than 1;
b) is equal to 1;
c) always greater than 1;
d) greater than 0 but less than 1;
e) can take any value.
29. The process of creating money by commercial banks begins when:
a) funds are credited to a bank account;
b) the bank provides a loan to its client;
c) the client returns the borrowed funds to the bank;
d) the client spends funds borrowed from the bank;
30. The bank multiplier is valid only on the condition that:
a) banks make full use of their credit facilities;
b) the population keeps all funds in bank accounts;
c) banks do not have excess reserves;
d) there is no correct answer.
31. Cash withdrawal from current accounts:
a) reduces the money supply
b) increases the bank multiplier;
c) reduces the velocity of money circulation;
d) increase the money supply
d) I can't say for sure.
32. The money supply increases if commercial banks:
a) increase their deposits with the central bank;
b) increase the volume of loans provided to households and firms;
c) increase their liabilities on current accounts by receiving cash and non-cash money from the population on deposits;
d) withdraw part of their deposits in the central bank;
e) reduce their liabilities on current accounts by paying cash or non-cash money on deposits.
33. The money supply is reduced if:
a) a person deposits cash into a commercial bank account;
b) a person withdraws money from his account in a commercial bank;
c) a person buys real estate abroad;
d) a person takes a loan from a commercial bank;
e) a person buys securities.
34. Commercial banks can create money by:
a) transfer of part of the deposits to the central bank for exchange for cash;
b) purchases of government securities from the central bank;
c) a deposit of cash in the central bank;
d) maintaining a 100% reserve ratio;
e) issuing excess reserves on credit to its customers.
35. If the required reserve ratio is 20%, then the presence in the banking system of excess reserves in the amount of $100. can lead to a maximum increase in the money supply by:
b) $100;
c) 300 dollars;
d) $500;
36. If the required reserve ratio is 25%, then the bank multiplier is:
37. If the reserve requirement is 10% and a bank that does not have excess reserves receives a $100 deposit. from a new client, then his excess reserves will be equal to:
d) $100;
e) 1000 dollars.
38. If a bank's required reserves are $40,000 and deposits are $200,000, then the bank multiplier is:
39. If the bank multiplier is 8, then the required reserve ratio is:
d) I can't say for sure.
40. If the bank multiplier is 4, and the value of the bank's deposits is $100 million, then the required reserves are equal to:
a) $20 million;
b) $25 million;
c) 40 million dollars;
d) 50 million dollars;
e) 100 million dollars.
41. If the bank multiplier is equal to 8, and the value of the bank's required reserves is $30 million, then the value of deposits is:
a) $80 million;
b) $120 million;
c) $240 million;
d) 300 million dollars;
e) 375 million dollars.
42. If a bank, having fully used its credit capabilities, issued a loan of 24 thousand dollars, which led to an increase in the money supply by 120 thousand dollars, then the value of deposits of this bank is equal to:
a) 12 thousand dollars;
b) 24 thousand dollars;
c) 25 thousand dollars;
d) 30 thousand dollars;
e) 48 thousand dollars.
43. If a person withdraws his $1,000 deposit. from Bank A and deposits this amount on a deposit in Bank B, then with a required reserve ratio of 10%, as a result of these actions, the total amount of demand deposits may change by:
a) 1 thousand dollars;
b) 9 thousand dollars;
c) 10 thousand dollars;
d) I can't say for sure.
44. If a commercial bank has a deposit in the amount of 10 thousand dollars. and the required reserve ratio is 20%, then this deposit is able to increase the amount of loans provided by this bank by:
a) an undefined value;
b) 8 thousand dollars;
c) 10 thousand dollars;
d) 20 thousand dollars;
e) 40 thousand dollars.
The depositor contributes $4,000 to a commercial bank. in cash. A commercial bank increases its required reserves by $800. and issues a loan in the amount of 2000 dollars. As a result of these operations, the money supply
a) decrease by $4,000;
b) increase by $2,000;
c) decrease by $2,000;
d) increase by $8,000;
e) increase by $10,000.
46. A commercial bank sold $1 million worth of government bonds to its customers. and added the amount received to his reserves. The offer of money is therefore;
a) decreased by $1 million;
b) has not changed;
c) increased by $1 million;
d) increased by $1 million multiplied by the bank multiplier;
d) I can't say for sure.
47. A commercial bank sold government bonds to the central bank for $500,000. The amount paid by the central bank, the commercial bank fully issued on credit. The required reserve ratio is 12.5%. The money supply is therefore:
a) decreased by 500 thousand dollars;
b) has not changed;
c) increased by $500,000;
d) increased by 4,000 thousand dollars;
e) increased by 3500 thousand dollars.
48. If the required reserve ratio is 10%, and the amount of required reserves of the bank is $50 million, then the maximum amount of loans that the entire banking system can issue is:
a) $4,000 million;
b) 4500 million dollars;
c) 5000 million dollars;
d) 5500 million dollars.
49. If in a commercial bank the amount of deposits is 20 thousand and the required reserve ratio is 25%, then the increase in the money supply of the entire banking system will be:
a) 20 thousand dollars;
b) 25 thousand dollars;
c) 40 thousand dollars;
d) 60 thousand dollars;
e) 80 thousand dollars.
If, as a result of the issuance of a commercial bank loan in the amount of 40 thousand dollars. the money supply increased by $200,000, then the total amount of deposits in the entire banking system is
a) 250 thousand dollars;
b) 290 thousand dollars;
c) 300 thousand dollars;
d) 312.5 thousand dollars;
e) 400 thousand dollars.
51. If commercial banks have deposits of $60 billion, banks have fully utilized their lending capacity, and the bank multiplier is 3, then the money supply will be:
a) $20 billion;
b) $60 billion;
c) $63 billion;
d) $120 billion;