Business, 23.06.2020 23:01 khush77

In the tables that follow you will find consolidated balance sheets for the commercial banking system and the 12 Federal Reserve Banks. Use columns 1 through 3 to indicate how the balance sheets would read after each of transactions a to c is completed. Do not cumulate your answers; that is, analyze each transaction separately, starting in each case from the numbers provided. All accounts are in billions of dollars. a. A decline in the discount rate prompts commercial banks to borrow an additional $1 billion from the Federal Reserve Banks. Show the new balance-sheet numbers in column 1 of each table.
b. The Federal Reserve Banks sell $3 billion in securities to members of the public, who pay for the bonds with checks. Show the new balance-sheet numbers in column 2 of each table.
c. The Federal Reserve Banks buy $2 billion of securities from commercial banks. Show the new balance-sheet numbers in column 3 of each table.
Instructions: Enter your answers as whole numbers in the gray-shaded cells in both tables below..
CONSOLIDATED BALANCE SHEET:
ALL COMMERCIAL BANKS
(1) (2) (3)
Assets:
Reserves $ 34 $ $ $
Securities 58
Loans 62
Liabilities and net worth:
Checkable deposits $150 $ $
Loans from the Federal Reserve Banks 4
CONSOLIDATED BALANCE SHEET:
TWELVE FEDERAL RESERVE BANKS
(1) (2) (3)
Assets:
Securities $60 $ $ $
Loans to commercial banks 4
Liabilities and net worth:
Reserves of commercial banks $34 $ $ $
Treasury deposits 3
Federal Reserve Notes 27
d. Now review each of the above three transactions, asking yourself these three questions:
(1) What change, if any, took place in the money supply as a direct and immediate result of each transaction?
(2) What increase or decrease in the commercial banks%u2019 reserves took place in each transaction?
(3) Assuming a reserve ratio of 20 percent, what change in the money-creating potential of the commercial banking system occurred as a result of each transaction?

Answers: 3

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In the tables that follow you will find consolidated balance sheets for the commercial banking syste...

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