8. (LO 1) Table 9.1A shows abbreviated balance sheets for the central bank in the country of Beckland. Table 9.1B shows tables for its whole commercial banking system.

The target reserve ratio for the banks is 10 percent.

(All figures are in billions of dollars.)

a) Suppose that the Bank of Beckland buys $1 billion of government securities (T-bills) from the commercial banks. Show the immediate effects of this transaction on the balance sheets in column (1) of Tables 9.1A and B.

b) What effect does this transaction have on the money supply of Beckland?

c) What effect does the transaction have on the banking system’s excess reserves?

d) If the banks were to fully loan-up, show the result in column (2) of the banking system’s balance sheet.

e) By how much has money supply now changed?

Change in money supply: +/- of

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