00:01
Looking at the behavior of banks and the federal reserve and how that relates to a pro -cyclical money supply.
00:07
So reviewing quick that this pro -cyclical money supply would tell us that it's going to rise during booms and fall during recessions.
00:15
So if we're looking at the behavior here of banks while understanding that during an expansion or otherwise an economic boom, we're going to see increases in interest rates.
00:28
Now, this increase in interest rates makes it really ideal for banks to lend their money out because it's going to be much more profitable for them to lend that out than it is for them to hold it in reserves.
00:38
So therefore, the increase in interest rates will end up leading to a decrease in the excess reserves that banks are holding.
00:47
Now, because banks have then decreased their excess reserves, we're going to see that reserve ratio fall, which will ultimately end up increasing the money multiplier.
00:57
And we know that when we increase the money multiplier, we'll see an increase in the money supply.
01:02
Now, this is the behavior.
01:04
Of banks...