The following are simplified consolidated balance sheets for the commercial bank
ID: 2429414 • Letter: T
Question
The following are simplified consolidated balance sheets for the commercial banking system and the Federal Reserve Banks. All figures are in billions of dollars, FRBs = Federal Reserve Banks, and CBs = Commercial Banks. R = 20%. Assume all Commercial Bank Reserves are kept on deposit in the Federal Reserve Banks.
a. The money multiplier is ______. 1 point
b. Perform the following transaction, making appropriate changes in column (1) of each balance sheet: The Fed buys $10 billion in securities from commercial banks. For your response, write CB: and put the five numbers (going down the column) separated by commas, then FRBs: and put those five numbers separated by commas. 5 points
c. The change in commercial bank reserves as a result of the transaction is $______ billion and the change in the money-creating potential of the banking system is $______ billion. 2 points
d. This Fed action represents ____________ (contractionary / expansionary) monetary policy meant to ________ (lower / raise) market interest rates and __________ (increase / decrease) aggregate demand to eliminate a(n) _____________ (recessionary / inflationary) gap.
Banking System (0) (1) Federal Reserve Banks (0) (1) Assets: Assets: Reserves 155 $______ Securities 542 $______ Securities 141 ______ Loans to CBs 25 ______ Loans 329 ______ Liabilities: Liabilities: Reserves of CBs 155 ______ Checkable Deposits 600 ______ Treasury Deposits 30 ______ Loans from FRBs 25 ______ Federal Reserve Notes 382 ______Explanation / Answer
A . The value of money multiplier is 1/reserve ratio = 1/ 0.2 = 5
C . The change in commercial bank reserves is 145 dollar
D . Contractionary , lower , decrease , inflationary gap
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.