Question: On page 467 in the text, we analyzed how the sale of $100 worth of its foreign assets affects the central banks balance sheet. The

On page 467 in the text, we analyzed how the sale of $100 worth of its foreign assets affects the central bank’s balance sheet. The assumption in that example was that the buyer of the foreign assets paid in the form of domestic currency cash. Suppose instead that the buyer pays with a check drawn on her account at Pecuniacorp, a private domestic bank. Using a balance sheet like the ones presented in the text, show how the transaction affects the central bank’s balance sheet and the money supply.

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Assets Liabilities FA 900 Deposits held by banks 400 DA 1500 ... View full answer

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