What increase or decrease in the commercial banks reserves took place in each transaction?.
In the tables that follow you will find consolidated balance sheets for the commercial banking syst Show more 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 $2 billion from the Federal Reserve Banks. Show the new balance-sheet numbers in column 1 of each table. b. The Federal Reserve Banks sell $4 billion in securities to members of the public who pay for the bonds with checks. Show the new balance-sheet figures in column 2 of each table. c. The Federal Reserve Banks buy $3 billion of securities from commercial banks. Show the new balance-sheet figures in column 3 of each table. Instructions: All answers below are to be entered as whole numbers. CONSOLIDATED BALANCE SHEET: ALL COMMERCIAL BANKS CONSOLIDATED BALANCE SHEET: ALL COMMERCIAL BANKS CONSOLIDATED BALANCE SHEET: ALL COMMERCIAL BANKS CONSOLIDATED BALANCE SHEET: ALL COMMERCIAL BANKS 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 CONSOLIDATED BALANCE SHEET: TWELVE FEDERAL RESERVE BANKS CONSOLIDATED BALANCE SHEET: TWELVE FEDERAL RESERVE BANKS CONSOLIDATED BALANCE SHEET: TWELVE FEDERAL RESERVE BANKS 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 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? Transaction a: 1. The money supply (Click to select)did not changedecreasedincreased. 2. Reserves (Click to select)increaseddecreased from $34 to $ billion. 3. Money-creating potential (Click to select)decreasedincreased by $ billion. Transaction b: 1. The money supply (Click to select)decreasedincreased by $ billion. 2. Reserves (Click to select)decreasedincreased from $34 to $ billion. 3. Money-creating potential (Click to select)increaseddecreased by $ billion. Transaction c: 1. The money supply (Click to select)did not changeincreaseddecreased. 2. Reserves (Click to select)increaseddecreased from $34 to $ billion. 3. Money-creating potential (Click to select)increaseddecreased by $ billion. Show less
What increase or decrease in the commercial banks reserves took place in each transaction?
