Blog Video Summaries
3/16/16
5th Video Summary
This video talked about Money Creation and Multiple Deposit Expansion (all those sample problems we've done in class with RR and ER and all that jazz. One point that was made: Banks make money by making loans!!!
Money Multiplier: 1/ RR (Reserve Requirement)
EXAMPLE: Bobs puts $500 into the bank. The reserve requirement is 20%. What is the amount of money that is created in the banking system?
RR= 20% so 1/.2=2. ----------------> Money Multiplier= 5
5(Loan Amount) --------------> 5 x 500= 2,500
Answer: $2,500
(This answer is implied that there are no ER- Excess Reserves. If there were, our $2,500 would be decreased.)
-JaelyNoTainted
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