M=C+D

Money Supply= Currency in circulation + Checkable Deposits

Central Bank

Banks

Depositors

Borrowers

Currency in Circulation

-Paper money and coins in the hands of Businesses and Consumers

Reserves

- The difference between the collateral and the amount that a bank can lend. i.e. 10% reserve of $2000= $200

Government Securities

-E.g. T-Bills, Notes, Bonds

Discount Loans

- •Discount loan is a loan on which the interest and financing charges are deducted from the face amount when the loan is closed

Open Market Operations

-The central bank controls the short term interest rateand the supply of base money in an economy, and thus the total money supply.

Extention of Discount Loans

-A loan on which the interest and financing charges are deducted from the face amount of the loan.

Always increases the monetary base by the amount of the purchase.

The effect on the reserves depends on whether the seller of the bonds keeps the proceeds from the sale in currency or deposits.

Floats

-Money in the banking system that is counted twice for a breif time due to delays in the processing of checks.

Treasury Deposits at the Federal Reserve

Money supply is positively related to the non-borrowed monetary base