AP®︎ Macroeconomics: Topic 4.4 Flashcards

A system where banks keep only part of deposits as reserves and lend the rest.

The fraction of deposits banks must hold as reserves rather than lend out.

The minimum amount of deposits a bank must keep and not loan out.

Reserves held above the required minimum that banks can use to make new loans.

Funds in checkable bank accounts that can be withdrawn on demand.

The ratio of the money supply to the monetary base; maximum value equals 1 divided by reserve ratio.

Multiply initial excess reserves by the money multiplier to find the greatest possible increase.

Multiply the initial change by the money multiplier to find each systemwide maximum.

Banks expand the money supply by lending excess reserves, which become new deposits in other banks.

Banks may hold excess reserves and the public may hold currency instead of redepositing it.

A record of a bank’s assets and liabilities that must always balance.

The maximum expansion factor for deposits, loans, or money supply, equal to 1 divided by the required reserve ratio.