Econ Notes: More Money

Three Types of Multiple Deposit Expansion

1. Type 1: Calculate the initial change in excess reserves (aka the amount a single bank can loan from the initial deposit
2. Type 2: Calculate the change in loans in the banking syste
3. Type 3: Calculate the change in money supply

Sometimes Type 2 and Type 3 will have the same result if there is no federal involvement

amount of new demand deposits - required reserve = initial change in excess reserves

initial change in excess reserves x money multiplier = max change in loans

maximum change in loans + $ amount of Federal reserve action