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“Some people got to have it, some people really need it” – For the Love of Money by the O’Jays. That is one of the many odes to money that we can find within pop culture. The want, pursuit, use, and maintenance of the cash we long for is described in countless ways. The Pretender, as performed by Jackson Browne paints a torn feeling for money. ABBA’s song Money, Money, Money also defines the classes created by money and its emotional consequences. In the song first mentioned, money is depicted as a controller of the holder. With its ownership comes responsibility to use it positively. Although this is a mere songwriters vision, how far off were they to the reality of the money’s control? In this week’s chapter monetary policy and its effect and control on macroeconomics were discussed and have been reviewed in the following.
Money Creation
The creation of money consists of the government buying and selling of securities or bonds and by using bank reserves to make loans. Commercial banks are only required to keep a fraction of the deposits at the reserve or as vault cash (McConnell & Brue, 2004) this amount is known as the reserve ratio. The extra deposits also known as excess reserve can be utilized as loans in order to create additional checkable deposits (McConnell & Brue, 2004). Individual commercial banks can only lend an amount that is less than or equal to its excess reserve. The excess reserve is calculated by subtracting the required reserve from the actual reserve. The banking system magnifies the original excess reserve into a larger amount of newly created checkable deposit money (McConnell & Brue, 2004). This can be seen using the monetary multi ...