Money Creation Using TAccounts ECON 102 H Principles
- Slides: 17
Money Creation (Using T-Accounts) ECON 102 H (Principles of Macroeconomics) Alan Gin Spring 2020
Step 1: Deposit of $1, 000 into Bank of America Assets Liabilities + S. E. Reserves +1000 Deposits +1000
Step 2: Part of the reserves received by Wells Fargo are required reserves Bank of America Assets Liabilities + S. E. Reserves +1000 Deposits +1000 Required Reserves +100 Excess Reserves +900 Because deposits were made at Bank of America, 10% (since rr = 0. 10) must be kept as required reserves
Step 3: Bank of America makes loans of $900 Wells Fargo Bank of America Assets Res RR ER Liabilities + S. E. +1000 Dep +100 +900 Assets +1000 Bank of America makes loans of $900, which are deposited to an account at Wells Fargo Liabilities + S. E.
Step 3: Bank of America makes loans of $900 Wells Fargo Bank of America Assets Res RR ER Loans Liabilities + S. E. +1000 Dep +100 +900 +1000 Assets Liabilities + S. E.
Step 3: Bank of America makes loans of $900 Wells Fargo Bank of America Assets Res RR ER Loans Liabilities + S. E. +1000 Dep +100 +900 +1000 Assets Liabilities + S. E. Dep +900
Step 4: Money is transferred from Bank of America to Wells Fargo Bank of America Assets Res RR ER Loans Liabilities + S. E. Assets +1000 Deposits +1000 +100 +900 When the check is cleared, money is transferred from Bank of America to Wells Fargo Liabilities + S. E. Deposits +900
Step 4: Money is transferred from Bank of America to Wells Fargo Bank of America Assets Res RR ER Loans Res ER Liabilities + S. E. +1000 Dep +100 +900 -900 +1000 Assets Res When the loan check is cleared, money is transferred from Bank of America to Wells Fargo Liabilities + S. E. +900 Dep +900
Step 5: Part of the reserves received by Wells Fargo are required reserves Wells Fargo Assets Res Chase Liabilities + S. E. +900 Dep Assets +900 Because deposits were made at Wells Fargo, 10% (since rr = 0. 10) must be kept as required reserves Liabilities + S. E.
Step 5: Part of the reserves received by Wells Fargo are required reserves Wells Fargo Assets Res RR ER Chase Liabilities + S. E. +900 Dep +90 +810 Assets +900 Because deposits were made at Wells Fargo, 10% (since rr = 0. 10) must be kept as required reserves Liabilities + S. E.
Step 6: Wells Fargo Makes Loans of $810 Wells Fargo Assets Res RR ER Chase Liabilities + S. E. +900 Dep +90 +810 Assets +900 Wells Fargo makes loans of $810, which are deposited to an account at Chase Liabilities + S. E.
Step 6: Wells Fargo Makes Loans of $810 Chase Wells Fargo Assets Res RR ER Loans Liabilities + S. E. +900 Dep +90 +810 +900 Assets Liabilities + S. E.
Step 6: Wells Fargo Makes Loans of $810 Chase Wells Fargo Assets Res RR ER Loans Liabilities + S. E. +900 Dep +90 +810 +900 Assets Liabilities + S. E. Dep +810
Step 7: Money is transferred from Wells Fargo to Chase Wells Fargo Assets Res RR ER Loans Res ER Liabilities + S. E. +900 Dep +90 +810 -810 +900 Assets Res When the loan check is cleared, money is transferred from Wells Fargo to Chase Liabilities + S. E. +810 Dep +810
Step 8: Part of the reserves received by Chase are required reserves Chase Wells Fargo Assets Res RR ER Loans Res ER Liabilities + S. E. +900 Dep +90 +810 -810 +900 Assets Res Because deposits were made at Chase, 10% (since rr = 0. 10) must be kept as required reserves Liabilities + S. E. +810 Dep +810
Step 8: Part of the reserves received by Chase are required reserves Chase Wells Fargo Assets Res RR ER Loans Res ER Liabilities + S. E. +900 Dep +90 +810 -810 +900 Assets Res RR ER Because deposits were made at Chase, 10% (since rr = 0. 10) must be kept as required reserves Liabilities + S. E. +810 Dep +81 +729 +810
Change in Deposits Bank of America Change in Deposits +1, 000 Wells Fargo +900 Chase +810 Citibank +729 . . . Total change +10, 000
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