Unit 4

cash deposits from the public is called (dd)

Expansionary policy is used for a recession

• Ms increases
• Reserve ratio decreases 
• discount rate decreases 
• OMO buy bonds
• More money supply

Contractionary policy is used for inflation

• Ms decreases 
• Reserve ratio increases
• discount rate decreases  
• OMO sell bonds
• less money supply

Prime rate- rate that charges the most credit worthy customers

Loanable funds-Market where buyer and savers are

Equations:

 actual reserve -required reserves=ER

1/RR= Money multiplier

ERxMM=new loans

DD=RR+ER

• Deposits in a bank are called liabilities
• Federal fund rate is when banks offer an overnight loan (24)
• ER is the only money that can be loaned
• money that's directly deposited from the Fed into federal reserves automatically becomes a part of the money supply.