Banks are able to create new money through lending. Banks create new money when they make loans, and conversely, the money supply shrinks when customers repay previous loans to banks.

Each commercial bank has mandatory reserves established by law, the amount of which is determined by the Central Bank. Required reserves- This is the portion of the deposit amount that each commercial bank must credit to the account of a branch of the Central Bank. For different deposits (demand, time, etc.) their own reserve norm is established - a percentage of the amount of deposits. The minimum size of the reserve fund is established by law (the share of the reserve in the bank's assets ranges from 3 to 20%) and is a tool for regulating the amount of money in the country.

Excess reserves – This is the difference between the bank's total reserves and required reserves, they are called bank's lending potential .

The formation of required reserves somewhat limits the ability of commercial banks to provide loans. The bank can use excess reserves to increase money.

For example, a person deposited 1000 rubles in the bank. The required reserve ratio (rr) is set at 10% for all banks.

Bank A's actual reserves (FR) will be RUB 1,000. Therefore, excess reserves are 90% (i.e. E = FR–R). Thus, Bank A created 900 rubles. extra money.

FR = R + E,

where R – required reserves;

E – excess reserves.

Bank A's balance sheet will be as follows:

If the operating entity used the received loan of 900 rubles. to purchase raw materials, then its suppliers will transfer the money received to their account in Bank B, the balance of which will look like this:

	Deposits+900

Thus, Bank B created additional money - 810 rubles.

Theoretically, with a reserve rate of 10%, each ruble invested in a bank will lead to the creation of 10, i.e., there is a multiplication:

m = 1/ rr,

where m is the banking multiplier (money supply multiplier), which shows how many new bank dollars the banking system creates when one additional ruble of deposit is received into it.

If R = 10% = 0.1, then m = 1/ 0.1 = 10.

M = m * E,

10 * 900 = 9000 rub.

This process will continue until the entire deposit amount is used as required reserves.

In real life, the multiplier effect of the expansion of bank deposits largely depends on the amount of “leakage” into the current circulation system, since not all money taken in the form of loans from banks is returned there as deposits - some of it continues to circulate as cash. In addition, we do not take into account that bank customers can withdraw money from checking accounts, which also reduces the ability of banks to issue loans.

The main factors on which the process of banks creating new money, and, consequently, changes in the money supply, depend, are the size of the minimum reserve rate and the demand for new loans from borrowers.

If money were withdrawn from bank reserves, the multiplier effect would work in the opposite direction. For example, the purchase by commercial banks of government bonds worth 10 million rubles from the Central Bank. reduces the bank's reserve resources by this amount, which ultimately leads to the destruction of bank deposits by 1 million rubles. (with a minimum reserve rate of 10%).

Loan potential banking system is equal to the sum of excess reserves of all commercial banks divided by the required reserve ratio.

The relative increase in the deposit amount is calculated using the simple interest formula (if capitalization of the deposit is not provided):

Rd = 1 + i* n,

where Rd is interest (income) on the deposit;

i – annual interest rate on the deposit;

n – number of years.

If interest is included annually in the deposit amount, then income is calculated using the compound interest formula:

Rd = (1 + i) n.

Commercial banks usually consider the minimum deposit reserve requirement to be too low to maintain normal solvency. In addition, required reserves are kept at the Central Bank. Therefore, commercial banks, as a rule, prefer not to lend out part of their excess reserves, but to store them in the bank itself. The share of deposits that commercial banks, on average, consider necessary to keep as excess reserves is called norm of excess reserve of deposits (er):

where ER is the volume of excess reserves

In the presence of excess reserves, commercial banks do not use their entire lending potential to issue loans, but minus the amount of excess reserves stored in the bank.

Economic meaning of the money multiplier

showing how many times the final increase in the money supply (money supply) exceeds the initial increase in the monetary base in the presence of cash balances with the population and excess reserves with commercial banks.

Since (cr + r)< 1, то денежный мультипликатор всегда больше единицы.

Since any expansion of the money supply is always a consequence of an expansion of the monetary base, then in the presence of cash balances with the population and excess reserves with commercial banks:

Ticket number 34. Monetary policy: its types, goals and impact on the economy.

One of the most important factors influencing the state of the entire economy is the supply of money. The possibility and necessity of using money to influence the economy is not disputed by anyone, but there are large differences in the views of Keynesians and monetarists regarding the mechanism and consequences of using monetary instruments.

The amount of money in circulation cannot be arbitrary; To maintain economic stability, it is necessary to maintain certain proportions between the money supply and the mass of goods. This relationship can be expressed with great simplification by I. Fisher’s formula MV = PQ, Where

M - money supply (money supply);

V is the velocity of circulation of money (the number of revolutions of a monetary unit per year);

P - average price per unit of production (goods and services);

Q - total volume of products produced per year

By changing the money supply, the state can have an active impact on the entire economy. Monetary Policy – economic policy that involves changing the money supply in order to achieve non-inflationary economic growth and full employment.

Changing the money supply is possible not only by issuing banknotes, but - taking into account the action of the money multiplier - also with the help of credit policy instruments. That's why content of monetary policy includes the use of all instruments affecting the money supply.

It is necessary to distinguish between active and passive monetary policy. Passive monetary policy appears in the case when a change in monetary parameters is a consequence of discretionary fiscal policy, that is, it is forced. Active policy is called when the state influences monetary parameters, pursuing the goals of economic growth and employment

Main (global) goals active monetary policy:

Growth in real volume of gross national product;

Ensuring full employment;

Price stability.

Ticket number 35. Monetary policy instruments.

In global economic practice, the following tools are used to influence the money supply in circulation:

1. change in the required reserve ratio;

2. change in the discount rate;

3. operations on the open financial market.

Open market operations . Currently, in world economic practice, open market operations are the main instrument of current monetary policy. Its essence lies in the fact that the state begins to carry out an active campaign either for the purchase or sale of securities on the open financial market, acting as an ordinary ordinary participant. This creates a very mild economic impact on the money market, since no administratively established standards are affected.

Let's consider the mechanism of influence of this instrument on the money supply.

Suppose that there is a high interest rate in the money market and the central bank sets the task of reducing it by increasing the money supply. For this he starts buying government and corporate securities on the open market. As demand for securities increases, their market price rises and yields begin to fall. This makes securities less and less attractive for their owners (the bulk of whom are banks), and they begin to get rid of them. As a result, securities go to the state, and monetary funds leave it for circulation. Banks, as a result of the sale of securities, increase the volume of excess reserves, and as a result of the action of the money multiplier - a significant increase in the supply of money. The money supply curve shifts to the right, the interest rate falls.

extended sale state securities.

Discount rate policy. Discount rate(in Russian practice it is usually called the refinancing rate) - this is the percentage at which the country's central bank provides loans to commercial banks. These loans should not be used by banks to lend to their clients. They are provided to banks only in cases when they have temporary difficulties with liquidity. But this rule is not very strict and is not always followed.

The discount rate is set by the central bank itself, based on current monetary policy goals. If the task is to reduce the bank interest rate, the central bank reduces the discount rate. This creates a desire among commercial banks to obtain more cheap loans from the central bank. As a result, excess reserves of commercial banks increase, causing a multiplier increase in the amount of money in circulation.

Leads to the opposite result raising the discount rate.

To increase the effectiveness of its monetary policy, the central bank can use both instruments simultaneously. The combination of expanded sales of securities with a sharp decrease in the discount rate (lower than the current yield of securities) encourages commercial banks to borrow reserves from the central bank, and direct all their funds to purchase securities from the population who are interested in them sale.

Required reserve policy. As noted earlier, the required reserve ratio is the minimum deposit reserve standard established for commercial banks. When it decreases, there is an increase in excess bank reserves and a multiplier expansion of the money supply. The opposite result is obtained when the norm of reserve requirements increases.

This instrument of monetary policy is, according to many experts, the most powerful, but at the same time too crude, since it affects the foundations of the entire banking system. For this reason, in countries with a developed and well-tuned economic system, it is rarely used. In the Russian transition economy, with its low sensitivity to “delicate” economic impacts, the use of this tool is very effective. In conditions of severe shortage of funds in circulation, a decrease in the required reserve rate can replace the issue of money.

Ticket number 36. Equilibrium in the commodity market. IS curve, its graphical, algebraic and economic interpretation.

IS curve - equilibrium curve in a product market. It represents the locus of points characterizing all combinations of Y and R, which simultaneously satisfy the income identity, consumption, investment and net export functions. At all points of the curve IS equality of investment and savings is maintained. Term IS reflects this equality (Investment = Savings). The simplest graphical output of a curve IS associated with the use of savings and investment functions

In Fig. 2.1, A shows the savings function: as income increases from Y to Y, savings increase with S before S

The required reserve norm and its functions. Actual and excess reserves, refinancing rate (discount)

Required reserves of banks are established by the Central Bank of the Russian Federation in the form of a norm (share expressed as a percentage) in relation to the amount of funds raised. The norms of required reserves are differentiated by type of deposits. The highest rate is for deposits of individuals. Mandatory reserves in the form of deposits are located in the Central Bank of the Russian Federation. Mandatory reserves to a certain extent guarantee the possibility of their owners receiving deposits. Required reserves are a mechanism for regulating the overall liquidity of the banking system. Reserve requirements are established in order to limit the credit capabilities of organizations and maintain the money supply in circulation at a certain level. In a difficult financial situation, when, for example, inflation rates are high, an increase in the required reserve ratio significantly reduces total credit resources and the interest rate on the loan increases. And this reduces the money supply, and, consequently, reduces the pressure of purchasing demand on prices, blocking inflation.

The reserve ratio is the share (in %) of the bank. deposits, which should contain. as obligatory reserves in the bank's cash desk, or in its correspondent account with the Central Bank.

Excess reserves = actual reserves -- required reserves.

Functions of the reserve norm:

• 1) conducting interbank settlements
• 2) control over the ability of individual commercial banks to lend

Excess reserves - the bank has the right to dispose of them at its own discretion. Excess reserves - the amount by which the bank's actual reserves exceed its required reserve. Excess reserves can be used by commercial banks to make loans.

Actual reserves are the amounts of bank deposits, that is, actual deposits. Actual reserves are cash reserves received from depositors that the bank currently owns. Using excess reserves, the bank can issue loans and receive interest income from them. Therefore, banks usually try to limit the size of their required reserves to an acceptable level, since deposits with the Central Bank do not earn interest.

The discount rate, or refinancing rate, is the percentage at which the Central Bank issues loans to other banks. Such loans do not require mandatory reserves. Lowering the refinancing rate contributes to the expansion of lending in the country and accordingly increases the money supply: lower refinancing rates allow commercial banks to lend to enterprises and households also on more acceptable terms. An increase in the discount rate has the opposite effect on the money supply.

Required reserves are part of the deposits of commercial banks, which the latter must keep in the form of interest-free deposits with the Central Bank or another organization that acts as a regulator of the banking system. Required reserve standards are set as a percentage of the volume of deposits attracted by banks and may vary by type of deposit. If a country has a system of compulsory insurance of bank deposits, then these reserves no longer serve so much as deposit insurance, but rather serve to perform the control and regulatory functions of the Central Bank.

Excess reserves are amounts in excess of required reserves that banks can hold on their own initiative in case of unforeseen situations (for example, unexpected cases of increased need for liquid funds).

The higher the required reserve ratio, the less funds banks can use for active operations (including credit). An increase in the required reserve ratio reduces the effect of the banking (money) multiplier and should lead to a decrease in the money supply. Thus, the Central Bank, through the mandatory reserve norm, influences the money supply.

The required reserve rate is usually used as an auxiliary measure, since a change in the rate can have a significant impact on bank profits, but in practice, unfortunately, has little effect on the money supply. The money supply is influenced by too many multidirectional factors, which ultimately can neutralize the impact of changes in the mandatory reserve rate.

Change in discount rate. Discount rate (refinancing rate) is the rate at which the Central Bank, as a lender of last resort, lends to commercial banks. The mechanism of impact of changes in the discount rate is as follows. An increase in the discount rate leads to a reduction in borrowings by commercial banks from the Central Bank. This leads to a curtailment of the operations of commercial banks to provide loans and an increase in loan interest. As a result, the volume of lending decreases and loans become more expensive. Money is becoming more expensive. A reduction in the discount rate acts in the opposite direction and, as a result, money becomes cheaper. The discount rate is usually lower than the interbank lending market rate, which should (theoretically) make this instrument of monetary regulation more effective. However, obtaining a loan from the Central Bank may also be administratively limited, since not every bank can apply to it.

Open market operations– purchase and sale of securities by the Central Bank. By purchasing, the Central Bank helps to increase the funds at the disposal of commercial banks. This leads to an increase in the volume of loans provided by banks, a decrease in the interest rate, cheaper money and an increase in the money supply. By selling, the Central Bank ensures the opposite result. Often these transactions are carried out in the form of repos (repurchase agreements). The bank sells securities with an obligation to buy them back at a certain price after a certain period. The fee for this service is the difference between the purchase and sale prices.

The impact of open market operations on bank reserves is almost immediate. Open market operations are considered to be the most flexible and precise instrument of monetary policy, having a more subtle indirect effect on the money market than others.

Types of monetary policy:

1. Tight monetary policy – ​​maintaining the money supply at a certain level.

2. Flexible monetary policy – ​​maintaining the interest rate at a certain level.

The choice of monetary policy option depends on the reason for the change in the situation in the money market. For example, an increase in the demand for money is associated with inflation. In this case, a strict policy of maintaining the money supply is appropriate.

It should be borne in mind that the Central Bank is not able to simultaneously fix the money supply and the interest rate. For example, if the demand for money increases, then in order to maintain a stable interest rate, the Central Bank is forced to expand the supply of money in order to reduce the impact on the interest rate from the increased demand for money.

The central bank cannot completely control the money supply. For example, an increase in the money market interest rate may cause excess reserves to decrease, but at the same time encourage the public to increase their deposits and therefore reduce holdings. This will be reflected in the money multiplier and, instead of reducing the supply of money, we will get an increase in this supply.

Depending on the current economic situation and the goals of economic policy, the state can pursue a policy of cheap money or a policy of expensive money.

Cheap money policy. If real output is significantly lower than full employment output (real GDP is significantly lower than potential GDP), then the economy suffers from unemployment. In these conditions, a policy of cheap money should be pursued, that is, the money supply should be significantly increased. The following techniques are used for this:

· purchases on the open market;

· reduction of the mandatory reserve requirement;

· reduction of the discount rate.

The result of these measures will be an increase in excess reserves of commercial banks, which may lead to an expansion of the money supply and an increase in the money supply. An expansion in the money supply will cause the interest rate to fall and therefore investment to rise. Under the influence of the multiplier effect, aggregate demand will change (in this case increase) to a greater extent than investment will change, which, in turn, will move the economy in the right direction - towards the level of full employment. A cheap money policy is carried out if the main problem of the economy is unemployment and a decline in production.

Dear money policy. If the economy experiences a situation of demand inflation, then it is advisable to pursue a policy of expensive money. The following measures apply:

· sales on the open market;

· increasing the mandatory reserve rate;

· increase in discount rate.

As a result of these measures, commercial banks begin to experience a shortage of funds and are forced to reduce the volume of loans issued. This leads to a decrease in the money supply and an increase in interest rates. A high interest rate leads to a reduction in investment spending, and through them to a reduction in aggregate demand, which should curb demand-side inflation. The policy of expensive money is carried out if the main problem of the economy is inflation.

The effectiveness of monetary policy is complicated by the feedback effect of GDP on the interest rate. Of course, the interest rate largely determines the equilibrium level of GDP, as it affects investment and aggregate demand. However, there is also feedback. The level of GDP affects the equilibrium interest rate, since the demand for money for transactions depends directly on the level of nominal GDP. This means that the GDP growth caused by the cheap money policy increases the demand for money, thereby weakening the effectiveness of the policy in lowering the interest rate. The policy of expensive money leads to a decrease in nominal GDP. However, this reduces the demand for money and weakens the effectiveness of this policy as a means of raising interest rates.

Cheap money policies are not applicable in a full employment economy. If the economy has reached/approached full employment, then an increase in aggregate demand will not have any effect on the real volume of output and employment, since there are no longer any free resources with which to increase output. The result of a cheap money policy in this situation will be an inflationary spiral.

The policy of dear money is inapplicable (inappropriate) in conditions of recession and unemployment. It will only lead to a further reduction in real production and increased unemployment.

Advantages and disadvantages of monetary policy.

I. Advantages: It is believed that monetary policy is the main tool for stabilizing the economy.

1. Monetary policy is amenable to rapid change. Its effect on the money market (especially when it comes to open market operations) is believed to be almost instantaneous.

2. Monetary policy can be conducted relatively independently of political structures and is not too susceptible to political incentives (so-called “election influence”).

3. The impact of monetary policy on the economy and economic agents is softer and subtler than the impact of changes in government spending or tax policy.

II. Disadvantages: The use of monetary policy has certain limits.

1. Control over the supply of money by the Central Bank is weakened with the development of alternative channels for investing money (for example, electronic money). The internationalization of the economy influences in the same direction: flows of financial resources from or to a given country can significantly complicate control over the money supply.

2. The policy of cheap money can create conditions for the expansion of lending, but cannot force commercial banks to issue loans, and economic agents to take them.

3. The modern economic cycle is often characterized by a combination of production decline and inflation (stagflation), that is, there are simultaneously reasons for pursuing a policy of expensive money and reasons for pursuing a policy of cheap money.

4. The speed of money movement usually changes in the direction opposite to the change in money supply, which slows down or completely cancels out changes in the money supply caused by monetary policy. For example, during a period of inflation, monetary policy aims to limit the money supply, but during inflation, the speed of money flow increases. The effectiveness of the policy being pursued is zero. On the contrary, during a recession, monetary policy is aimed at increasing the money supply, but the speed of movement of money slows down, which also leads to a zero result of the measures taken (running up an escalator that goes down).

Types of tasks:

· Problems on the relationship of monetary aggregates;

· Problems on using the equation of exchange;

· Tasks on calculating the monetary base, money supply, money multiplier, deposit ratio and reserve ratio;

· Tasks on the relationship between required, actual and excess reserves and the determination of the banking multiplier;

· Problems of calculating changes in the money supply in the economy of a hypothetical country;

· Problems of calculating changes in the volume of deposits in the banking system;

· Tasks to determine changes in the reserve ratio for commercial banks;

· Tasks for calculating changes in the lending potential of the banking system.

4.1. Let's assume that each transaction dollar circulates on average 4 times a year and is used to purchase final goods and services. The nominal volume of GDP is $2000 billion. Determine the demand for money for transactions.

Solution

To calculate, we use the exchange equation:

M×V = P×Q = GDP,

M = GDP / V= 2000 / 4 = 500 billion dollars

4.2. Calculate monetary aggregates M 0, M 1, M 2, M 3, using the following data: time deposits - 1930 billion rubles, government securities - 645 billion rubles, money in current accounts - 448 billion rubles, cash - 170 billion rubles.

Solution

M 1 = M 0+ money in current accounts,

M 1= 170 + 448 = 618 billion rubles,

M 2 = M 1+ money in urgent accounts,

M 2= 618 + 1930 = 2548 billion rubles,

M 3 = M 2+ securities of the state and commercial banks,

M 3= 2548 + 645 = 3193 billion rubles.

4.3. The bank's excess reserves are 3,000 den. units, and the total amount of current deposits is 30,000 den. units The required reserve ratio is 20%. Determine the bank's actual reserves.

Solution

The bank's required reserves, in accordance with the reserve requirement of 20%, must be:

Ro= 30,000 × 0.2 = 6,000 den. units

In this case, the bank's actual reserves, calculated as the sum of required and excess reserves, will be equal to 9,000 den. units:

RF = RO + RI= 6000 + 3000 = 9000 den. units

4.4. The total reserves of a commercial bank are 220 million rubles. Deposits are equal to 950 million rubles. The required reserve ratio is 20%. How might the money supply change if a bank decides to use all its excess reserves to make loans?

Solution

With a reserve rate of R = 20%, the amount of required reserves will be:

Ro= 950 × 0.2 = 190 million rubles.

Therefore, excess reserves are equal to:

Ri = 220 – 190 = 30 million rubles.

If all of them were used to issue loans, then the additional supply of money could be:

ΔM = RI × m bank = RI/R = 30 / 0.2 = 150 million rubles.

4.5. Calculate the total increase in the money supply in the country if the reserve ratio is 20% and the initial increase in deposits is 500 million rubles.

Solution

m bank = 100% / R = 100% / 20% = 5,

ΔM = RI × m bank= 500 × 5 = 2500 million rubles.

4.6. The volume of deposits in the banking system increased 3 times, while the total volume of lending decreased by 1.5 times. Determine how the reserve norm for commercial banks changed.

Solution

To solve this problem you need to perform the following calculations:

V cr (1) = M 1 / R 1,

V cr (2) = M 2 / R 2 = 3M 1 / R 2,

V cr (1) / V cr (2) = (M 1 / R 1) : (3M 1 / R 2) = 1,5.

Having performed elementary transformations, we obtain

R2/R1 = 4,5.

Thus, the reservation rate increased 4.5 times.

4.7. Total reserves of the banking system are 2000 million rubles, check deposits are 15000 million rubles. The reserve ratio is 10%. At what reserve rate will the lending potential of the system double?

Solution

Let us calculate the total excess reserves of the banking system as the difference between the total reserves of the banking system and the total required reserves:

RI= 2000 – 0.1 × 15000 = 500 million rubles.

The lending potential of the banking system () is equal to the sum of excess reserves of all commercial banks divided by the reserve ratio.