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Balance sheet should have loans as 5,500,000 not 6,500,000 Balance Sheet for Genrica Bank Assets Liabilities Deposits $10,000,000 Reserves Loans Treasury bonds Total $1,000,000 6,500,000

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Balance sheet should have loans as 5,500,000 not 6,500,000

Balance Sheet for Genrica Bank Assets Liabilities Deposits $10,000,000 Reserves Loans Treasury bonds Total $1,000,000 6,500,000 3,500,000 10,000,000 10,000,000 Above is the balance sheet for Genrica Bank. Its reserve requirement ratio is 8%. a) Calculate the reserves that Genrica is required to hold. Does it have any "excess" reserves? b) Calculate the excess reserves. What can Genrica Bank do with these reserves? c) Show how the balance sheet changes when the action in part (b) is taken. d) What happens if the Fed now sells $500,000 worth of Treasury bonds to Genrica? How much will the latter keep in reserves after this transaction? Is it a sufficient amount? e) Now show what happens in the market for money. Does the interest rate go up or down? Graph the result, following the model in Appendix A3 of Chapter 12. Precise numbers are not needed here; I am only interested in the direction of the change. f) Use graphical analysis (again, without specific numbers) to show what happens to intended investment and aggregate expenditures as a consequence of the Fed's open market bond sale

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