Macroeconomics monetary policy/What is money
Watch this Kahn Academy video, which explains fractional reserve banking. Be mindful that total reserves are the checkable deposits that the public has placed in a commercial bank. Required reserves are a percentage of the checkable deposits that must remain in a commercial bank as required by the Federal Reserve. Required reserves are set by the Federal Reserve to protect banks from customers running on the bank, i.e., reserves protects a bank from customer panic. Excess reserves are a percentage of checkable deposits that a bank is authorized by the Federal Bank to lend out. Consequently, required reserves are deposits from which the banks earn a profit through the loan and repayment process.
Next watch this video, also from Kahn Academy, about full reserve banking.
Finally, read this chapter about monetary policy and bank regulations, Principles of Macroeconomics: "Chapter 15, Introduction to Monetary Policy and Bank Regulation".
What are some of the differences between full and fraction reserve banking systems. Are they trying to accomplish the same end? Which system does the country you live in use? Share your thoughts with your classmates by writing a blog post. Remember to tag (Wordpress) or label (Blogger) your blog post using the course tag: Principles_of_Macroeconomics/MAEC103/tag
