Reserves

Type 1: calculate the initial change in excess reserves

-aka the amount a single bank cab loan from the initial deposit

Type 2: calculate the change in loans in the banking system

Type 3: calculate the change in the money supply

-sometimes type 2 and type 3 will have the same result (i.e. no FED involvement)

Type 4: calculate the change in demand deposits

Vault Cash: Cash held by the bank

Reserve ratio=commericial bank's required reserves/commercial bank's checkable deposit liabilities

Excess reserves: actual reserves-required reserves

Required reserves: checkable deposits x reserve ratio

Factors that weaken the effectiveness of the deposit  multiplier

1. If banks fail to loan out all of their excess reserves
2. if bank customers take their loans in cash rather than in new checking account deposits, it creates a cash or currency drain

Demand for money has an inverse relationship between nominal interest rate and the quality of money demanded

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