Assets:

Total reserves: $10 billion

Loans: $5 billion

Securities: $10 billion

Total: $25 billion

Liabilities & Net Worth:

Checkable deposits: $25 billion

Total: $25 billion

What is the required reserve ratio?

Suppose the Federal Reserve sells $3 million of bonds to a bond dealer, who pays the Fed by writing a check against the funds in her checking account. What is the initial impact of this transaction?

As a result of the Feds sale of $3 million of securities, checkable deposits in the banking system can potentially _____ (increase/decrease) by as much as ___