22. (8 points) The balance sheet below is an abbreviated version of Federal Rese
ID: 1105242 • Letter: 2
Question
22. (8 points) The balance sheet below is an abbreviated version of Federal Reserve balance sheet in 2016 Titanic bank is fictional Federal Reserve millions S Loans to Banks Securities Gold and foreign exchange Assets Liabilities S0 Currency in circulation $1,460,000 $2,240,000 S 500,000 $4,250,000Bank Reserves $10,000 Other $300,000 Other a. (2 pts)Calculate the monetary base. Assume the reserve reserve requirement is 10% Titanic Bank millions Assets Liabilities Deposits at Fed 11,000 Checkable Deposits 65,000 Non-transaction deposits $50,000 Required Reserves Excess Reserves Loans $70,000 Securities $33,000 b. (4 ptsfSuppose the Federal Reserve sells $3000 million in securities to Titanic bank. Show this on the Federal Reserve balance sheet and Titanic's balance sheet c. (2 pts) Recalculate the monetary base after the open market saleExplanation / Answer
Answer (a) : Monetary Base (Federal Bank) = Currency in circulation +Bank reserve
Monetary Base = 1,460,000+2,240,000 = $37,00,000
Answer (b) : When federal bank sells securities $3000
Balance sheet of federal bank
Assets Amt Liabilities Amt
Loan to bank $0 Currency in circulation $1,460,000
Securities $4,247,000 Bank reserve $2,237,000
Gold and forgien exchange $40,000 Others $5.00.000
Others $3,00,000
Titanic Bank Balance sheet :
Assets Amt Liabilities Amt
Deposits at fed 11,200 Checkable Deposits $61,800
Loan 67000 Non transaction Deposit 50,000
Securities 36000
Answer c : Monetary base of federal bank = Currency in circulation +Bank reserve
Monetary base of federal bank = 1,460,000+2,247,000
Monetary base of federal bank = 36,97,000
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