The Money Supplay Process

1. Adinda Sugma Nur C 170431622135

2. Aryani Purwaningrum 170431622006
There are Four Player on The Money supplay Process

1. Central Bank
2. Bank
3. Depositor
4. Borrowers from bank

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 Neraca The Fed
“ The operational activities of the central bank and its
monetary policy involve actions that affect its
balance sheet, namely ownership of its assets and
liabilities.

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liabilities
Currency
in Reserves
Circulation

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Asset

Discount
Securities
Loan

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 Control Of The Monetary
Base
MB = C + R
The Federal Reserve exercises control over the
monetary base through its purchases or sales of
securities in the open market, called open market
operations, and through its extension of discount loans
to banks.

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Federal reserve Open Market
Operations

For example the fed buys $100 bonds from a

bank and pays by check for $100

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 Banking System
Assets Liabilities
Securites -$100
Reserves +$100

Federal Reserve System

Asset Liabilities
Securites +$100 Reserves +$100
 Open Market Purchases from
Non-Bank Public
For example a person or company that sells $100
bonds to the fed deposits the fed check at a local bank

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 Non-Bank Public
Asset Liabilities
Government Securities -$100 Reserves +$100
Checkable Deposits +$100

Banking System
Asset Liabilities
Reserves +$100 Checkable Deposits +$100

Federal Reserve System

Asset Liabilities
Government Securities Reserves +$100
+$100
 Non-Bank Public
Asset Liabilities
Securities -$100
Currency +$100

Federal Reserve System

Asset Liabilities
Government Securities Currency in circulation +$100
+$100
 Open Market Sale
For example, the fed sells bonds to a bank or a non-bank community,
who pays them in cash, the buyer exchanges $100 the currency
for $100 bonds

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 Non-Bank Public
Asset Liabilities
Securities +$100
Currency -$100

Federal Reserve System

Asset Liabilities
Government Securities -$100 Currency in Circulation -$100
 shifts from deposits into
currency
Suppose that Jane Brown decided that bank tellers forced her so she
closed her checking account by withdrawing $ 100 cash
and said she would never save again at the bank

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 Non Bank Public
Asset Liabilities
Checkable Deposits -$100
Currency +$100

Banking System
Asset Kewajiban
Reserves -$100 Checkable Deposits -$100
 Federal Reserve System

Asset Leabilities
Currency in circulation + $100
Reserves - $100
 Discount Loans

When the fed gives a loan of $ 100 to Frist National Bank,

the bank will enter it as credit with a reserve of $ 100 as a result of the loan

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 Banking System
Asset Liabilities

Reserves Loans +$100

+$100
(Borrowings From the Fed)

Federal Reserve System

Asset Liabilities
Loans +$100 Reserves +$100
(Borrowings From the Fed)
 Banking System
Asset Leabilities

Reserves Loans -$100

-$100
(Borrowing From the Fed)

Federal Reserve System

Asset Leabilities
Loans -$100 Reserves -$100
(Borrowing from the fed)
Other Factors That Affect the
Monetary Base
Treasury
Float
deposits

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Multiple Deposit
Creation: A Simple
Model
Multiple Deposite Creation
When the fed supplies the banking system for $ 1 of
reserves the savings will increase with a multiplier of
that amount

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 Deposit creation: The single
Bank
Frist National Bank
Asset Leabilities

Securities
-$100
Reserves +$100

Frist National Bank

Asset Leabilities

Securities -$100 Checkable Deposits +$100

Reserves +$100
Loans +$100
 Frist National Bank
Asset Leabilities

Securities -$100

Loans +$100
 Deposit creation: The Banking
system
Bank A
Asset Leabilities

Reserves -$100 Checkable Deposits +$100

Bank A
Asset Leabilities

Reserves +$10 Checkable Deposits +$100

Loans +$90
 Bank B
Asset Liabilities

Reserves -$90 Checkable deposits +$90

Bank B
Asset Liabilities

Reserves +$9 Checkable deposits +$90

Loans +$81
 Bank A
Asset Liabilities

Reserves +$10 Checkable deposits +$100

Loans +$90
 ✘   Deposit Multiplier
Simple

ΔD = x ΔR
Where:
ΔD = Change in total checkable deposits in the bangking system
r = required reserve ratio
ΔR = change in reserves or the banhking stystem

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Deriving the formula for
Mutiple Deposit Creation
our assumption that banks do not hold excess
reserves, it means the total reserve required for the
RR banking system will be same as the total reserves
in the banking system R

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“
RR = R
✘  RR = r x D
rxD=R
D= xR
ΔD = x ΔR
Dimana :
RR = total required reserves
R = total reserves
r = the required reserve ratio
D = the amount of checkable deposits

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Thank you
By : Dinda and Aryani

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