federal reserve

• the amount of money the banking system generates with each dollar of reserves
• the money multiplier is the reciprocal of the reserve ratio
• r=1/10 so multiplier is 10
• the higher the reserve ratio the less of each deposit the banks loan out and the smaller the money multiplier

banking systems in which banks hold only a fraction of deposits as reserves

the purchase and sale of US bonds by the fed; tool of monetary policy most often used by fed

interest rate on loans that the fed makes to banks

minimum amount of reserves banks must hold against deposits; decrease in reserves increasea money supply

Federal Deposit Insurance Corporation guarantees the safety of deposits at most banks

people get scared and withdraw all their money from the bank