Use commercial bank and Federal Reserve Bank balance sheets to demonstrate the immediate effect of each of the following transactions on commercial bank reserves. Assume that the initial reserve ratio is 20 percent. Fill in the new balance in the column in the balance sheet that corresponds with each of the following transactions. Consider each transaction separately, not cumulatively. a. Federal Reserve Banks purchase $2 billion worth of securities from banks b. Commercial banks borrow $1 billion from Federal Reserve Banks at the discount rate. c. The Fed reduces the reserve ratio from 20 percent to 19 percent. Instructions: Enter your answers as whole numbers in the gray-shaded cells of both tables below. Consolidated Balance Sheet: All Commercial Banks A B C Assets 42 $ 41 $ Reserves $40 40 58 $ Securities 60 $ 60 $ 60 102 $ 102 $ Loans 102 $ 102 Liabilities and net worth: Checkable deposits 200 $ 200 $ 200 $ 200 3 $ Loans from the Federal Reserve Banks 2 2 $ 2 Consolidated Balance Sheet: 12 Federal Reserve Banks Assets: 285$ 283 $ Securities $283 $ 283 2 S Loans to commercial banks 21 2 $ Liabilities and net worth: Reserves of commercial banks 40 42 41 40 5 $ 5 $ Treasury deposits $ 5 225 S 225 $ Federal Reserve Notes 225 225 15 S 15 $ Other liabilities and net worth 15 $ 15 d. Commercial banks increase their reserves after the Fed increases the interest rate it pays on reserves. Which of the columns above could represent this action?

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question

Commercial banks increase their reserves after the Fed increases the interest rate it pays on reserves. Which of the columns above could represent this action?

Use commercial bank and Federal Reserve Bank balance sheets to demonstrate the immediate effect of each of the following
transactions on commercial bank reserves. Assume that the initial reserve ratio is 20 percent. Fill in the new balance in the column in
the balance sheet that corresponds with each of the following transactions. Consider each transaction separately, not cumulatively.
a. Federal Reserve Banks purchase $2 billion worth of securities from banks
b. Commercial banks borrow $1 billion from Federal Reserve Banks at the discount rate.
c. The Fed reduces the reserve ratio from 20 percent to 19 percent.
Instructions: Enter your answers as whole numbers in the gray-shaded cells of both tables below.
Consolidated Balance Sheet: All Commercial Banks
A
B
C
Assets
42 $
41 $
Reserves
$40
40
58 $
Securities
60
$
60
$
60
102 $
102 $
Loans
102
$
102
Liabilities and net worth:
Checkable deposits
200 $
200 $
200
$
200
3 $
Loans from the Federal Reserve Banks
2
2
$
2
Transcribed Image Text:Use commercial bank and Federal Reserve Bank balance sheets to demonstrate the immediate effect of each of the following transactions on commercial bank reserves. Assume that the initial reserve ratio is 20 percent. Fill in the new balance in the column in the balance sheet that corresponds with each of the following transactions. Consider each transaction separately, not cumulatively. a. Federal Reserve Banks purchase $2 billion worth of securities from banks b. Commercial banks borrow $1 billion from Federal Reserve Banks at the discount rate. c. The Fed reduces the reserve ratio from 20 percent to 19 percent. Instructions: Enter your answers as whole numbers in the gray-shaded cells of both tables below. Consolidated Balance Sheet: All Commercial Banks A B C Assets 42 $ 41 $ Reserves $40 40 58 $ Securities 60 $ 60 $ 60 102 $ 102 $ Loans 102 $ 102 Liabilities and net worth: Checkable deposits 200 $ 200 $ 200 $ 200 3 $ Loans from the Federal Reserve Banks 2 2 $ 2
Consolidated Balance Sheet: 12 Federal Reserve Banks
Assets:
285$
283 $
Securities
$283
$
283
2 S
Loans to commercial banks
21
2
$
Liabilities and net worth:
Reserves of commercial banks
40
42
41
40
5 $
5 $
Treasury deposits
$
5
225 S
225 $
Federal Reserve Notes
225
225
15 S
15 $
Other liabilities and net worth
15
$
15
d. Commercial banks increase their reserves after the Fed increases the interest rate it pays on reserves. Which of the columns above
could represent this action?
Transcribed Image Text:Consolidated Balance Sheet: 12 Federal Reserve Banks Assets: 285$ 283 $ Securities $283 $ 283 2 S Loans to commercial banks 21 2 $ Liabilities and net worth: Reserves of commercial banks 40 42 41 40 5 $ 5 $ Treasury deposits $ 5 225 S 225 $ Federal Reserve Notes 225 225 15 S 15 $ Other liabilities and net worth 15 $ 15 d. Commercial banks increase their reserves after the Fed increases the interest rate it pays on reserves. Which of the columns above could represent this action?
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

Blurred answer
Knowledge Booster
Fundraising
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education