_| 3 19 Suppose that in a country, there are only two banks, Bank A and Bank B. The file HW8 Bank Balance Sheets shows their balance sheets. Here are some simplifying assumptions to make our lives a bit more bearable: 1. The country uses dollars as its unit of accounts. 2. There are no travelers' checks in this country. 3. There are no fancy accounts in this country like money market mutual funds deposits. 4. Other deposits consist of saving deposits by households as well small denomination (less than $100,000) time deposits. 5. The amount of currency held by the non-bank public is $25,000. This amount will remain the same throughout our story. 6. All the reserves are held at the central bank. They also call their central bank "the Fed". 7. There are no reserve requirements (the required reserve ratio is zero). In this country, the M1 money supply equals dollars and the M2 money supply equals dollars. HW8 - Bank Balance Sheets.pdf X + Assets Uses of Funds Bank A Balance Sheet Liabilities + Net Worth Sources of Funds $65,000 Demand Deposits Reserves Other Deposits $150,000 $1,000,000 || Treasury Bonds $85,000 Borrowing From the Fed From Fed Funds Market $50,000 $100,000