Sign Michigan Banking IOU Fast

Industry sign banking michigan iou fast

[Music] [Music] anybody got any uh song requests out there so it's friday people how we doing out there good morning good morning we're learning about bank balance sheets today which is pretty fun to learn about i would suggest it's gonna be pretty fun we're gonna do a little accounting today i'm gonna show you guys three bank balance sheets and you try your own that is the game plan today welcome on in people glad you're here glad you're here how are we doing out there on a fine friday people people only got two more weeks we only have two more weeks it's going to fly all people do you guys see out that i uh i got the christmas tree all lit up over there looking pretty nice looking pretty nice you know we're getting festive we're decorating a little bit you know man is audio all good music too loud you got me zade all right couple announcements the big announcement is um unit three test retakes will be available yes everything's good we'll be available today all right so after school today at two o'clock i will um you know open up the uh the unit 3 test retake for you to take which also means i'm going to close the other unit 3 tests right so if you haven't looked at your unit 3 test yet and you know you don't know what you got wrong right i would suggest you do that before 3 o'clock right before three o'clock because i'm gonna close that and i'm gonna open up the new test obviously right it's very similar to the old test but um i definitely changed a lot of things around so i'm gonna have to close the old one first what who it's coming from what are you talking about we're down oh yeah um aside from that uh i will post a 4.3 answer keyboard on google meet later today 4.4 is gonna be due tonight that's what you were doing yesterday that was the money multiplier uh assignment and then 4.5 is going to be one bank balance sheet most of you guys will be able to finish that uh before 12 o'clock and you'll be on your way to enjoy a nice weekend all right um and then i'm thinking monday next week we're gonna learn about big balance sheets a little bit you know probably do a little more practice with it we'll kind of see where we're at after today and then we only have really one more concept to learn about in unit 4 that's the loanable funds market and then we'll review unit 4 and then we'll we'll start unit 5 which is very very short unify will probably take us about four days four days to do and then we're pretty much done and then what's going to be the final exam people a 200 multiple choice test and you only have an hour to complete it good luck i'm just kidding i'm getting it all right um so let's get to some attendance in the chat your tennis in the chat today is what is your favorite snack food what is your favorite snack food like if you're not trying to eat a meal but you're hungry right and you're trying to eat it like you know something something chill something small what do you usually uh what should go to right mine would have to be grapes especially purple grapes not the green ones the green ones are ripe but like grapes i like grapes a lot it's a nice light snack that uh tastes pretty good i think is coffee shop open oh yeah oh man this is easy for you guys um pop-tart aiden says seaweed seaweed is super super healthy for you um aiden what like like like like straight up seaweed or or what is it like dried is it salted it can't just be like just you know pure seaweed right it's got to be like it's got to be done up a little bit right now um pringles oh sophie says birthday cake oreos actually that actually is one of my favorite um you never think but i do like birthday cake oreos um chex mix a lot of you guys are saying chex mix over here kyle says chips what kind of chips kyle you know what kind of chips you know you got doritos you got you know lay's right what kind of chips um riley said popcorn that's a good one popcorn i think actually is pretty healthy for you too i'm not like healthy but it's not like it's not unhealthy for you it's not that bad um cheez-its ooh i like cheez-its i like cheese it's a lot of jack um strawberry shortcake pop-tarts ooh pop tarts are pretty good i've been in pop-tarts in a while though cheez-its david says fruit yeah i kind of like fruit i like fruit because it fills you up and like you don't really feel like awful afterwards strawberries pretzels or grapes grapes are the best peanut butter uh english muffin peanut butter english muffin cheez-its fruit rice krispie pomegranate seeds oh that's pretty healthy for you allison says shawn mendes who shawn mendes though i don't know who this guy is does he go to graham blank is he is he in your guys's grade who's shawn mendes no uh goldfish roasted salted roasted salted oh uh with the seaweed yeah yeah i was gonna say you gotta get have something to it right because if you're eating straight up seaweed and like you like it that's like the most healthiest thing you can ever ever do um goldfish man i haven't goldfish since i was a little whipper snapper um uh wrong account again oops oh it's on you um hershey ooh chocolate candy it's a good snack cookies pecans or dried fruit chicken and rice chicken rice man it's like a meal are you responding to something else i asked about real boy cheesy bismuth only chicken rice that's a meal spicy sweet chili doritos yeah those are good that's what i'm talking about kyle pretzels pretzels i don't know who shawn mendes is all right um it gets ready get ready to get into it it's ready ready i only got half a coffee left i'm gonna get through this all right people make sure you guys are putting your attendance in the chat some of you guys are not and i find you on google me so how do i know if you're not sleeping the whole time right and you just like pop in around like you know 11 40. i'm on to you all right i'm on to you all right let's get into it people hey extra credit to anyone out there who who wants to make me a playlist that is school appropriate that doesn't have annoying songs in it um yeah contact me later about it i love a cool playlist i usually ask students for playlists and they always give me like i don't know i don't know like songs that are really like um like you'd hear on like a really mainstream radio sort of thing right i don't i don't know about that i want some i want some weird songs you know all right let's get going people let's get going about bank belgians all right before we talk about bank balance sheets so there's one concept we need to learn about before we can get into the bank balance sheets because it is a concept that is asked a lot on bank balance sheet frqs all right all right and that is what is the relationship between bond prices and interest rates all right so we talked a little bit about what a bond is yesterday right a bond or two days ago well yesterday right a bond is um is simply an iou right you know if the government issues a bond right you're buying the bond you're giving the government money money so therefore you're lending money to the government right and that the government's going to use that money to finance some sort of you know government operation right you know building roads or funding a war or whatever the case may be right so since you're lending the money uh to the government right they're going to give you that money back of course plus an interest rate right so all bonds have some sort of rate of return uh that goes with them sometimes they're kind of complex because it depends upon like how long the length of the bond isn't and whatnot but every bond has some sort of rate of return some sort of interest rate on it and it just simply is an iou just simply you know lending money is all it is right and you can buy bonds uh from corporations you can buy bonds from like startup companies called junk bonds um and bonds just simply and iou right so the bond price right is is the value of the bond right how much you buy the bond for right so so if i buy a a government bond for a hundred dollars right 100 is the bond price all right so i'm buying i'm buying a government bond i'm giving the government a hundred dollars they're gonna give me a hundred dollars plus interest once the bond matures right after a few uh years so how are bond prices interest rates related so if interest rates change in the economy right in other words money supply changes or maybe money demand changes right and interest rates are to change that's going to obviously influence the price the value of previously issued bonds all right so let's run through this example real quick says assume a 30-year us treasury bond and sometimes bonds are also called securities right just to make sure um it has a face value of one thousand dollars all right so so someone bought the bond for a thousand dollars and they're expected to get one thousand dollars back plus five percent interest on that bond okay so after 30 years you're gonna get a whopping you know 50 bucks is the idea so if interest rates change in the economy right if interest rates go from five percent to three percent which bond would you rather have right would you rather have the old bond that has a rate of return of five percent or would you rather have a new bond that has a rate of return of three percent right which bond is more attractive all right the bond that's more attractive is the higher yield right the the bond that has the highest interest rate so if interest rates change and now the federal reserve is only issuing bonds at three percent right people are gonna want that five percent bond more than the new bonds so what's going to happen to the value of your bond if you wanted to sell your bond privately just you know somebody else you can sell your government bonds to other people privately if you wish right if you wanted to sell this one thousand dollar bond to somebody else right that gets a five percent interest rate and now bonds now one thousand dollar bonds are being issued at three percent right people are going to pay more than a thousand dollars for your bond that's the idea right if interest rates go down and now bonds are being issued at lower interest rates the previously held bonds the old issued bonds the ones that have five percent rate of returns on those are going to become more valuable that's the idea so if interest rates decrease old bonds previously issued bonds uh increase in value the price other word in other words right someone paid to buy your bond from you they would have to pay a higher price right because your bond is more more valuable that's the idea is bond prices and interest rates are inversely related and what i mean by that is bond prices of previously issued bonds are inversely related to interest rates if interest rates change okay so what you usually see is is you're going to be given a money market shifter generally money supply uh and you're going to get a change to you know the money market right so interest rates are going to change and then whatever happens to interest rates right if interest rates increase you're gonna say bond prices decrease because you know alternatively right if interest rates go from five percent to ten percent and you wanna you wanna get out of your bond you wanna sell your bond people aren't gonna pay a thousand dollars for your five percent bond when they can just go to the fed and buy a thousand dollar bond at you know ten percent right so if you want to sell your bond you're gonna have to take a lower price that's the idea bond prices and interest rates are always inversely related just make sure you understand that we're talking about previously issued bonds the value of those bonds and what you could get through those in the open market right in a private market okay so let's see if you guys are picking up what i'm throwing down over here says in the short run which of the following would occur to bond prices and interest rates if a central bank bought bonds through open market operations so open market operation simply is the buying and selling of bonds the central bank is also known as the federal reserve right just tons of vocab words kind of come at you guys so what so if the fed buys bonds what do we do if the fed buys bonds that's going to increase the money supply right that's going to increase the money supply actually one hold on hold on hold on we have technology now people we have more technology here which is pretty sweet right so if the fed buys bonds interest rates and i remember label this nominal interest rates label this quantity of money you know write it all out we got money supplies vertical we got money demand is downward sloping and the fed buys bonds right we know that when the fed buys bonds that is going to increase the money supply right they're buying the bonds they're getting the bonds back from you i'm giving the fed the bond the piece of paper and they're giving me cash money for that right they're putting money into the system that's going to increase the money supply a lot of students read that as like if are you buying bonds right no the fed's buying bonds therefore you're selling the bond back to the fed right that you have already purchased beforehand so yeah interest rates most definitely decrease so if interest rates decrease bond prices have to increase that's that's what we're doing right if if interest rates change right based on a change to the money mark and they could change money supply or money demand but usually it is the buying and selling bonds right you know bond prices are going to do the opposite right because if you wanted to sell your bond privately it's now more valuable because now the bonds that are being issued by the fed are not as valuable right they don't have as high of a rate of return as your bond does so um you guys probably don't even see the answer yeah the answer is c i think you got it right luke didn't you say c i think you said c you retracted your statement um so uh if the fed buys bonds interest rates fall thus increasing the uh the price of bonds all right it's just going to be one of those items that you're going to see repeatedly on bank balance sheet frqs right they love asking it about uh on bank balance sheet effort but i've also seen it on other you know just money market frqs right you know you change money supply interest rates change they're gonna say all right what happens to bond prices you just gotta just gotta know that they're talking about prices of bonds that have already been purchased previously purchase or held bonds um by the public all right for the or the private sector all right so let's learn about bank balances bank balances are usually pretty fun people because we're not taking a bunch of notes we're learning about a graph we're just going to learn how to do a little bit of counting and a bank balance sheet right for a bank or doing accounting for a bank is what we're doing um to kind of see all the the concepts that we've discussed already in unit 4. all right so some vocab you guys are going to see a lot the first one is demand deposits i've started trying to use this word a little bit right in lieu of checkable deposits or money in checking it is the same sheet it's going to be written as demand deposits all right this is simply money in your checking account i would imagine most you guys probably have a checking account most of you guys probably have a checking account in a savings account right most you guys probably have a debit card right perhaps right and you know when you swipe your debit card right it's money straight out of your checking account demand deposits right remember is m1 money it's very liquid money money in your checking account is extremely liquid you've got to swipe a card you can make a transaction it essentially is cash which also is m1 which remember demand deposits money in your checking account or checkable deposits required reserves we've already talked about this a little bit right that is the ratio that is the percentage that banks must hold on reserves and that's that's related to the amount of money and checkable deposits right it's all in relation to people's money in their checking account so if the reserve ratio is ten percent right and someone deposits a hundred dollars in their checking account all right reserve the requ red reserves are going to increase by 10 right if the reserve ratio is 10 percent reserves means cash so required cash required reserves is the amount of money that banks have to hold in relation to money and demand deposits based on the reserve ratio and you guys are going to see that here in a second it'll make a little bit more sense once you guys see it on paper and then excess reserves again think about reserves as meaning cash excess reserves excess cash is cash that the money can do whatever they want or the bank can do whatever they want right they can lend it out right they can use that cash to buy real estate they can use that cash to buy bonds they can use that cash for whatever means right it's just money that they are free to do whatever they so wish um and it is not the cash that isn't required deserves it's the other you know so again if someone puts 100 in their checking account and their reserve ratio is 10 that means required reserves are going to increase by ten dollars of that hundred dollar deposit and then excess reserves are obviously increased by ninety dollars for that hundred dollar deposit right it's the it's it's what's left over uh from the reserve ratio that is cash that the bank is free to use to make more money so a balance sheet a bank balance sheet is just a record of all banks assets liabilities and net worth and we know that an asset right is something that you know someone owns right a liability is what you owe a lot of vocab words today people um i hope you did the reading right asset is what you own a liability is what you owe all right so it says our demand deposits in a bank as money in a checking account in a bank an asset or a liability well it depends right who are we talking about right money in a checking account is a liability for a bank right because if you walk into the bank and you want to get money out of your checking account right they owe you that money they're responsible for paying you whatever money is in your checking account so it is a liability for the bank thus it is an asset for you all right so it kind of depends who owns it who owes it um all right so here's what a bank balance sheet looks like we got assets and we got liabilities right assets is what the bank you know owns liabilities is what the bank owes all right so these are always going to balance right because whatever money is put in is what the money is what the bank owns right until someone wants it back and then they're therefore gonna have to owe it right so this bank balance sheet always has to be balanced right so when when you make a change to one of these one of these numbers right the other side of the t chart sometimes it's called a t account right because you know a t chart a t account you're gonna have to make sure it balances on the other side right assets always have to equal liabilities this is the world of accounting all right um so it says if the bank is holding no excess reserves uh how much is the required reserve ratio right based on here well you know actually i put excess reserves in here so that didn't really make any sense but it's so generally right the first part of every bank balance sheet frq you guys are going to see that today is asking you what is the reserve requirement right what is the reserve requirement assuming that um you know they're they're abiding by the law right well you just take this required reserves divided by demand deposit so 500 divided by 5 000 is 10 so therefore we know that the result required reserve ratio is 0.1 or 10 because usually on a bank balance sheet right you're going to be asked questions to identify the money multiplier you're going to use the money multiplier to answer a lot of questions questions that you guys saw yesterday so um yeah the money multiplier in this case would be 1 divided by 0.1 the money multiplier would therefore be 10. all right so let's do some bank balance sheets right it's going to make a lot more sense as we do this right the only way to get good at bank balance sheets or accounting uh just this is repetition just to do a lot of it so i'm going to do three bank balance sheets today and then once we go to google meet you guys will just do one and then we'll call it a day right and we'll pick up on this again on monday all right so it says the filing is a simplified balance sheet for mit or a bank in the united states um and again you see assets and liabilities you see that there's a hundred thousand dollars of money in people's checking accounts all their checking accounts added together there's a hundred thousand dollars uh that the bank is responsible so if everyone that that uses this bank walks into the bank and demands their money out of their checking account the bank better come up with a hundred thousand dollars right that's the idea sometimes you see owner's equity in here right if the owner put any of his own money or he or she's own money in to the bank right obviously the bank would owe that owner right they put in their own money equity uh and then assets right um so required reserves is the amount of cash that the bank has to hold in reserves by law and then excess reserves the amount of cash that the bank has that they're free to do whatever they want total reserves would be required plus excess sometimes you see total reserves asked a lot total reserves just required plus access and it looks like currently this bank has 85 000 out currently in loans right so people are paying back 85 000 worth of loans you know over time and as they pay back those loans the value of excess reserves would obviously increase all right so and you know so as people pay back these loans right loans are going to decrease that money is going to get moved into excess right this whole thing always has to balance all right so just a couple couple of things and you'll see other things today and other bank balance sheets but people it always has to have demand deposits it always has to have reserves and generally there's always loans um out there all right and again see how it equals equals a hundred thousand dollars all right so question a says what is the reserve requirement based on this information all right well the reserve requirement has to be ten thousand right require reserves is ten thousand divided by the amount of money in demand deposits right because that's what required reserves means is the amount of cash that the bank must hold by law in relation to how much money is in demand deposits so it's ten thousand dollars divided by a hundred thousand dollars so we know that the the require the reserve ratio or the reserve requirement is 10 or you can write it in decimal form 0.1 but you're going to need that information too later on generally okay so that's the reserve requirement that that is that is a gimme i would i would think you just always take required reserves divided by demand deposits and that is you know how much the the bank has to hold by law because the bank is not going to hold any extra money and require reserves that they don't have to right they're not going to just put money in ear market required reserves right you guess on the video yesterday money is a hot potato right a bank wants to get money and get rid of it as quickly as possible because when you put money in the bank they got to pay you interest if it's a savings account so how do they pay you interest without making interest right like getting interest so they're not going to put any money and require reserves that stagnant if they don't have to so yeah the reserve requirement would obviously be 0.1 or 10 i usually write in percent form b assume that louis walks into the bank and withdraws 5 000 in cash from his checking account at this bank all right so again demand deposits is what a checking account right synonym for checking account right so we need to take five thousand dollars out of our demand deposit all right because the total value of all the money in checking accounts would decrease right because louis took five thousand dollars out of his checking account so this number is going to go from a hundred thousand to uh to ninety five thousand okay see what i did there he took money out of his checking account so the value of all checking accounts would have to decrease the amount of money in checking accounts would have to decrease because louis just got paid some cash all right now at this point is not it is not balanced right because you know i we have to pay the man right we have to pay louis his cash right so you know if i'm the bank how do i pay louis cash right well we have fifteen thousand dollars in cash right now we have ten thousand dollars in cash we're not really supposed to touch and we have five thousand dollars in cash we're free to do whatever we want all right so if i'm the bank teller right i'm gonna take cash out of excess reserves first and i'm gonna pay louie his five thousand dollars that where the bank is liable to pay him right because that's money that he put in his checking account right so we have to make sure we pay louis all right so what i did is i decreased demand deposits by 5000 right and then i decreased excess reserves by 5 000 because we got to give them 5 000 in cash what is left to do people what is left to do because at this point everything's balanced let's see if anyone's tracking what is one thing that i have forgotten to do at this point there's one more number i need to change there's one more number i need to change a lot of students would stop right here and then attack the questions what is what other things should i change here what other things should i change here let's get the glasses on very very good very very good and luke is on his game right the required reserves is required reserves right now 10 of demand deposits because it has to be at all times it has to be 10 of whatever money is in demand deposits and right now it is not it's greater than 10 of demand deposits so what i'm going to do again if i'm the bank teller right is i'm going to open up the required reserves the vault right and i'm going to have to take 500 out of requires it doesn't have to be in there why would i why would i keep it in there right and i'm gonna put that into excess i'm gonna i'm gonna take 500 out of required reserves and and how did i know to take 500 out right what is 10 percent of 95 000 it's 9 500 so that is all that is required so anything that's more than required any excess right would have to go into excess reserve so i'm going to put that back in here and there we go right everything is balanced it's 95 000 each side required reserves is 10 of demand deposits and um you know whatever was left over is in excess right there's not always going to be money in excess all right so now let's hit up these questions but how much will mitira's bank reserves change based on louise withdrawal all right so they were not specific on excess reserves or required reserves here they just said reserves right so assume they're talking about total reserves cash how much did mitr's bank's cash change based on louie's withdrawal all right total cash well beforehand right they had fifteen thousand dollars they had to pay louis five thousand so that's going to be how much their reserves changed by right it's gonna decrease by five thousand dollars they lost five thousand dollars in cash because louis took five thousand dollars of cash um out of his checking account what is the initial effect on the withdrawal on the n1 measure of money supply people this question is asked every single bank balance sheet every single bank balance sheet and of course i'm going to ask on your unifor test people please never get this wrong if someone withdraws money from their checking account or they deposit money in their checking account that would never change the m1 measure money supply because remember the m1 measure of money supply is currency right cash and coin money and checking accounts and then also travelers checks which we never like you know deal with really anymore right but all we did was we changed the composition of m1 right we just changed money went from our checking account to our um in this case yeah when he went from our checking account to cash if we deposit money money goes from cash to checking account all of those are included in m1 the value of m1 would never change right so the answer is unchanged and i explained it by saying um both demand deposits checking account right and cash are both components of m1 so the value of the m1 measure money supply would would definitely not change nice try right they're going to ask you that every single time in no way should you ever get that wrong right and seen it so many times okay um and then last one it says as a result of the withdrawal what is the new value of excess reserves so this has a new value all right so a couple things right sometimes they say new value and sometimes they say change right make sure you specifically look at what are they asking about before they said change so i said decrease by five thousand if they said what is the new value of reserves right the answer would therefore be ten thousand i'm talking about bi earlier right so make sure is it does it say change right or new value right so this one says new value what is the new value of excess reserves it'd be 500 right a lot of students probably put zero dollars for that because they left this thousand dollars i would imagine when they took this frq you know way back in the day all right they're seeing did you make this right right did you make this ten percent of this so the answer is five hundred dollars okay see assume that the next day john withdrawals right from mi tier banking amount that exceeds the bank's excess reserves assuming that no loans are called in right in other words no one's paying back their loans at the current moment um how are they going to cover their required reserves right so imagine you know john walks in and and withdrawals like i don't know like seven thousand dollars right and when you do the math required reserves is less than what is um you know ten percent of whatever's in demand deposit so obviously they have no money in excess right they're currently facing a penalty if they don't get money um very very quickly right so we talked about when we talked about monetary policy on wednesday how do banks get money right if they don't have money people aren't putting money in the bank and more people are taking money out of the bank than what they're putting in right they have two options banks can either borrow money directly from the federal reserve right and the interest rate that they pay is called the discount rate but yeah any sort of private bank can call up the fed and be like hey we need money they're going to pay an interest rate for that they can't the fed's not just going to give them free money even though they kind of do right like a quarter percent sometimes um but they can borrow money from the fed or they can borrow money from a private bank right they can borrow money from another you know nearby bank that way you know the fed isn't in their business um and they just you know can borrow from like america bank right and the interest rate that that bank charges the bank from borrowing money from them is called the federal funds rate you don't have to put that in your answer but i just wanted to put them there for a little review right the fed can directly change the discount rate the fed can't directly change the federal funds rate the federal funds rate is what is interest rate that banks charge one another but they can influence it obviously through open market operations people you guys got questions make sure you guys uh you put in the chat right you guys are really shy you guys are really shy but that was uh that was our first one that was our first bank balance sheet isn't that hard no and again the more you do of it uh the easier it's gonna be um because again you're gonna see that these questions kind of are all the same generally all right all right let's do another one right so this bank balance she's got a couple more things on it right we've got demand deposits again which is a liability got owner's equity which again is a liability we got assets what the bank ow d our owns they have two thousand dollars in required reserves right now they don't have any excess reserves um so so if you were to walk in the bank right now like they can't lend up anything right they they would be like sorry we can't give out any loans right now because we don't have any cash right we can't unless someone deposits more cash and this value goes up right now they've they so far they've given out eight thousand dollars in customer loans so customers are paying that back over time what you see here for the first time is this bank owns bonds right i told you guys that banks can buy whatever investments they want right they can buy you know real estate and things like that so this bank bought bonds right they bought bonds from the federal government and they're currently holding seven thousand dollars worth of bonds right and then also uh the building and fixtures and other things that the bank owns maybe they paid it off uh you know for that commercial space right they they own that at three thousand dollars right again things that they're putting on here that are never you're not gonna have to deal with but okay anyway so it says based on sewell bank's balance sheet calculate the required reserve ratio again generally it's always the first question it's just whatever is required reserves divided by demand deposits so 2 000 divided by 10 000 would be equal to 20 or 0.2 so the reserve required in this case is pretty high banks have to hold 20 of all money and checking accounts in required reserves um so that's that's just a right b suppose that the federal reserve purchases buys five thousand dollars worth of bonds from sewell bank what will be the change in the dollar value now what is the new dollar value what is the change in the dollar value for each of the following immediately after the purchase not over time immediately after the purchase so okay so here's what's gonna happen right they are selling their bonds right the bank is selling their bonds the fed is buying the bonds the fed is buying the bonds back right like hey you got seven thousand dollars worth of bonds the bank chose to sell them and therefore the the fed's buying them back so what is the bank gonna get for seven thousand dollars worth of bonds if the bank or if the fed buys it back from them seven thousand dollars in cash right well actually one sorry they only about five thousand dollars worth not all of it okay but yeah they're gonna get five thousand dollars worth of cash for the five thousand dollars sell sale of bonds back to the fed right so this number is going to go from 7 000 to 2000 right and then where are we gonna put that five thousand dollars people we're gonna put in excess right we're gonna put in excess reserves because they don't they don't they don't they're not they're not gonna put in your checking account right that'd be really nice for them to put five thousand dollars of their own money right into your checking account that'd be pretty nice um are they gonna put in required reserves no right they're not gonna put any any money in requires that they don't have to they they currently have twenty percent of demand deposits and that's all that is required right that money is always going to go all straight into excess they sell their own investment their own asset and they get cash for that they're going to put in excess reserves right and that'd be pretty smart in this case because that way they have some money that they can lend out and make more money on and you know profit maximize so um what is the change in the dollar value excess reserves increase by five thousand dollars people if you put five thousand dollars as your answer here and you didn't put increase right you would actually get it marked wrong okay make sure you put increase by five thousand uh dollars all right what is the change what now what is the new dollar value what is the change it increased by five thousand dollars right um and then what would be the change in the dollar value uh demand deposit zero right again they're not you know they're they're not uh gonna put money in your checking account right um you know based on their own investment they'd be pretty you know absurd all right should be nice though but all right so c says calculate the maximum amount that the money supply can change over time people these are the questions that i gave you yesterday right i you know if someone deposits money in the bank what is the maximum change in the money supply over time if the fed buys or sells bonds what's the maximum change in the money supply over time right so uh in this case uh the fed bought five thousand dollars worth of bonds right so we need to figure out that money multiplier so it's one over the reserve ratio one divided by point two so the money multiplier is five right point two goes into one five times so when they when they bought the bonds right they this was not money at the time this was you know five or seven thousand but they bought five thousand dollars worth of bonds that was just a piece of paper that said you know how much value it has right that was not money they they put five thousand dollars of new money in the system that wasn't m1 money before government bonds are not m1 money so they put five thousand dollars of new money cash into the system and that five thousand dollars in cash is gonna get multiplied by the money multiplier five times which is going to equal twenty five thousand dollars you have to make sure you say increase because we're buying bonds if we're selling bonds if the fed was selling bonds and they're giving issuing bonds and they're taking money out of the system that would decrease by 25 000 right so the answer is increased by 25 thousand dollars and i showed my work it doesn't say explain you don't have to but um just so you can look back at this if you need to um all right d says when the federal reserve purchases bonds what will happen to the price of bonds in the open market that's what we just did that's what we just did right when the fed buys bonds that was this right when the fed buys bonds it's going to increase the money supply if money supply increases interest rates decrease and if interest rates decrease right bond prices have to go up right because if you have the old issued bond at a higher rate than what's currently being issued by the fed and you want to sell it privately people would be willing to pay more for your bond now because if they wanted to buy that same bond they're offered a lower rate by the federal reserve so your bond is definitely more attractive so it's going to increase in value the bond price is going to increase now this one says explain and a sufficient explanation actually is simply saying whatever happens to interest rates if you make mention whatever happens interest rates that is actually a good explanation and that will um you know be good enough for for for two points here bond prices increase right because interest rates decrease um all right last but not least is that question again if someone deposits money into a bank or if they would draw money from a bank right their checking account what's going to happen to the m1 measure money supply it's not going to change right again because m1 counts money and checking accounts and cash and coin and travelers checks right but again if we're if we're moving cash and coin to our checking account or taking money out of our checking account and converting that to the cash and coin the value the total value of m1 would always be uh unchanged right there is no change in the m1 measure of of money supply all right last one last one i believe actually was the is the most recent one uh asked i want to say there might have been another one i'll have to look it up but um this is definitely a little bit more a recent one i think this was one of my first years um teaching i think but anyway um uh says the following is the balance sheet for first superior bank it just says reserves it doesn't specify required or access right and then we have demand deposits we have any sort of equity no one's got any equity put in the business uh and right now they currently have eighteen hundred dollars in loans very very very small bank here a very very small bank so here's where they threw a curveball right people expect every every year effort queues are going to get tougher that's just the nature of ap macroeconomics right in most ap classes right effort cues over time get tougher right so if you're looking at old frqs back in the day they're always easier than the newer ones right so they're always throwing new curve balls this was a curveball right it doesn't simply say what is the required reserve ratio in this case they actually give you it right it says the required result ratio is 10 they give you it right and what they want to know is what is the dollar value of new loans that first superior bank can make right now right someone walks into the bank right now what is the maximum amount of loans that that first superior bank can can give right now right well if the required reserve ratio is 10 how much is in required reserves because we need to figure out how much isn't required how much is in excess right if the required reserve ratio is ten percent ten percent of two thousand is two hundred dollars so right now required reserves is two hundred dollars and excess reserves is actually zero dollars they don't have any money and excess reserve they don't have any ability to give out new loans at the current moment right unless loans are called in or or they borrow from the fed or they borrow from another bank you see how i did that right 10 in required reserves so 10 of 2000 is 200 so this must be the value of required reserves so therefore they have no excess reserves they have no cash that they have on hand to give out excess deserves the amount of money that they can lend out right they don't have any ability to lend out money so zero dollars if the reserve ratio is 10 that means the value of required reserves is 200 right so therefore the value of x reserves zero therefore they can't lend out any money at the current moment mr smith deposits 100 of cash in a demand deposit in his checking account right um uh at first superior bank so mr smith walks in mr smith right like the teacher do you do you guys have him right mr smith right puts 100 of cash into his checking account what is going to be the change what is going to be oh sorry to calculate the maximum amount of new loans that first severe uh first spirit bank can now make so that's pretty easy right if someone walks in the bank and puts a hundred dollars into their checking account you're the bank teller you receive that hundred dollars where are you going to put that 100 right well you have to put 10 in required reserves so i'm going to take 10 percent of that 100 i'm going to put that in required reserves so now required reserve is going to be 210 right and if i put ten dollars at a hundred dollar deposit and require reserves that therefore means i have ninety dollars left over and i'm gonna put that into excess reserves of that one hundred dollar deposit i had to keep ten percent on reserve and i'm free to lend up ninety percent of that one hundred dollar deposit so the the amount of loans that i can give out now is ninety dollars like right now right i can give up so so after mr smith puts his hundred dollars of cash in in his checking account if someone walks to the bank i can lend up to a maximum amount of ninety dollars at the current moment the answer is simply ninety dollars all right see as a result of mr smith's 100 cash deposit calculate the maximum change over time right we've done this we did this yesterday but they're asking about different things here right they're not asking about the change in money supply over time they're actually going to ask about it down here they're asking about calculate the maximum change over time and the amount of loans that are going to be able to be given out right well the initial amount of loans is 90 based on the 100 deposit you know immediately the bank is going to be able to issue out 90 in loans so all you simply do is take what is the initial amount of lending that can take place ninety dollars times the money multiplier which in this case is uh is ten one over point one is ten right so the amount of loans over time is going to be nine hundred dollars i hope that makes sense right someone deposit hundred dollars in the bank i can i can the initial change that i can lend out is ninety dollars i'm gonna lend out ninety dollars that person's gonna deposit 90 in their bank the bank has to keep nine dollars of that they're free to lend out 81 they lend out 81 dollars they keep a portion lend out keep a portion lend out keep a portion lend out right it's going to become 900 in total money uh lent out over time given this multiplier right so if they're ever asking you know kel get the maximum change over time and whatever right just ask yourself what is the initial change right of whatever they're talking about times that by the money multiplier all right what's the maximum change in the overtime and demand deposits what was the initial change in demand deposits a hundred dollars right mr smith put 100 in demand deposit so a hundred dollars changed and then once that's lent out and deposited lent out deposit a lint out deposit so that last dollar is lent out or deposited right so you just take 100 times the money multiplier again right so 100 times 10 would be 1 000 that's going to be the total change in demand deposits over time it says over time you're just going to use the money multiplier and just ask yourself what is the initial change and then times that by the money multiplier to get that change over time d says as a result of mr smith's 100 cash deposit calculate the maximum change in the money supply of time so this is the exact question you guys did yesterday right if someone deposits money in the bank what's going to be the change in the money's play over time this is one you have to be careful about right because when he took that hundred dollars in cash that hundred dollars of cash was already counted in the m1 measure money supply this already is counted this is not new money right so when he puts hundred dollars in cash into his demand deposit there was no change in the money supply right so what is going to be the change in the money so over time again the initial amount went out we put a hundred dollars in the bank they keep ten dollars of it they lend out ninety dollars of it ninety dollars is what the bank is going to create ninety dollars times the money multiplier ten ninety times ten nine hundred dollars that's the amount of new money that the bank is going to create we talked about yesterday you guys saw in the film that banks in essence right create money they expand the money supply due to fractional reserve banking so i told i taught you guys two ways right really three ways actually but you just take the initial amount that's going to be lent out times the money multiplier and there's your answer or what you can do is you can take the full deposit 100 times the money multiplier and just make sure you take out that cash at the end because we know that that cash was already counted it doesn't represent a change right in in the money supply all right a change in the money supply so again that answer is nine hundred dollars kind of confusing right it's like 90 900 1900 right kind of confusing for students when they first saw this and the last answer is what i was i was sort of talking about yesterday and i was like you guys we'll talk more about it tomorrow is what is a reason or what are some reasons that um it never gets to this point right or any of these right you know how can loans never get to a full 900 change or you know one thousand dollar change in demand deposits or 900 change in the money supply over time we're assuming that what's going to happen is peop banks are going to lend out the full amount that they possibly can and people when they receive a loan deposit the full amount of money into their bank right if someone walks in the bank and deposits a hundred dollars in uh in cash in the demand deposits and then banks just sit on that and banks never lend out that 90 then the money is never going to get multiplied it can't right they have to they have to lend out the money for it to get multiplied it has to get deposited lent out deposit lent out over time that's why it always has maximum right say say the bank does lend out the 90 and then someone just takes that 90 dollars in loans um in cash right and then just and just puts it in their in their pillow right and and they never put it back into a bank and obviously money is not getting multiplied so my response was if banks don't lend out the full amount uh in excess reserves or people just hold money and people don't deposit uh all their cash into uh their checking account right then obviously uh the money supply can't expand by the full amount um yeah we're assuming that everything's going to get not fully lent out and fully deposited when that happens one point is remember saying that the money supply can be smaller than the maximum change if the public holds money or banks hold excess reserve they don't lend out or people don't deposit is the idea nine hundred one thousand it's pretty good all right all right people i know went along but bank balance she's sometimes kind of difficult for students right sometimes it's kind of a beast hopefully you're feeling kind of good about it uh and we'll see right i'll give you guys just one bank balance yeah i was gonna give you two we'll keep it light on a friday a little bit right um so i'll see you guys in google me i'll post that problem set and then you guys can ask questions if you have any