*When a customer deposits cash or withdraws cash from
their demand deposit account, it has no effect on the money supply
It only
changes:
1.
The
composition of the money
2.
Excess
reserve
3.
Required
reserves (due to the changes of DD)
Single Bank: loan money from excess
reserves (ER) only
Banking system: ER X multiplier =
total money supply
When the FED buys or sells bonds, ER
is created.
$200 x (1/.2) = $1000
RRR= 20%
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