FEDERAL RESERVE BANK ASSETS LIABILITIES Security Reserves When the Federal Reserve buys a security, they gain an asset in the form of a security. Since the goal is to increase the $ supply, they pay for the security by setting up additional reserves in the amount of the security on the liability side of the balance sheet. These reserves were not there before $100,000 $100,000 BANK ONE ASSETS LIABILITIES Reg. reserves The seller has an account at Bank One. When the sale is made the amount of the security is added to the seller's account at Bank One. Bank One then sets aside required reserves in the amount a established by the reserve rate of 25%, which is $25,000. This leaves $75,000 in excess reserves. which the bank can use to make loans. We are going to assume the bank loans out the entire 575.000 $25,000 Loan checking acct $75,000$100,000 BANK TWO ASSETS LIABILITIES If a borrower needs to buy something, they go to get a loan. The get a loan from and make their purchase. The store they made their purchase at, collects their receipts at the end of the day and deposits the $75,000 into their account at Bank Two. Bank Two sets aside 25% or $18.750 as required reserves. The remaining $56.250 in their excess reserves can be lent out. (Carr lecture/slides) Reg reserves $18,750 Loan checking acet $56,250$75,000 Fill in the table above to show what happens when the Federal Reserva buys $100,000 in Securities when the reserve requirement is 25%. Use appropriate labels and explain each step to the right. Assume that there are no excess reserves. Write the formula for the money multiplier and use it to calculate the total effect that the above security purchase will have on the money supply. ent/d/1YHZ9FkrVm3hWPISSER-ONKYAJOXO_Omiq KOKU Abs/edit ved in DEVE IUA 60 -- 13 EE-EEX DE 2003 Problem 1 Explain each step here FEDERAL RESERVE BANK When the Federal Reserve buys a security, they ASSETS LIABILITIES gain an asset in the form of a security. Since the Security Reserves goal is to increase the supply, they pay for the security by setting up additional reserves in the $100,000 $100,000 amount of the security on the liability side of the balance sheet. These reserves were not there before. BANK ONE The seller has an account at Bank One. When the ASSETS LIABILITIES sale is made the amount of the security is added to the seller's account at Bank One. Bank One Req. reserves then sets aside required reserves in the amount a established by the reserve rate of 25%, which is $25,000 $25,000. This leaves $75,000 in excess reserves which the bank can use to make loans. We are Loan checking acet going to assume the bank loans out the entire $75.000 $75,000$100,000 If a borrower needs to buy something, they go to BANK TIVO get a loan. The get a loan from and make their purchase. The store they made their purchase at collects their receipts at the end of the day and ASSETS LIABILITIES deposits the $75,000 into their account at Bank Two. Bank Two sets aside 25% or $18.750 as Req reserves required reserves. The remaining $56.250 in their excess reserves can be tent out. (Carr $18,750 lecture slides) Loan checking acct 556,250$75,000 Fill in the table above to show what happens when the Federal Reserve buys $100,000 in securities when the reserve requirement is 25%. Use appropriate labels and explain each step to the night. Assume that there are no excess reserves Write the formula for the money multiplier and use it to calculate the total effect that the above security purchase will have on the money supply. FEDERAL RESERVE BANK ASSETS LIABILITIES Security Reserves When the Federal Reserve buys a security, they gain an asset in the form of a security. Since the goal is to increase the $ supply, they pay for the security by setting up additional reserves in the amount of the security on the liability side of the balance sheet. These reserves were not there before $100,000 $100,000 BANK ONE ASSETS LIABILITIES Reg. reserves The seller has an account at Bank One. When the sale is made the amount of the security is added to the seller's account at Bank One. Bank One then sets aside required reserves in the amount a established by the reserve rate of 25%, which is $25,000. This leaves $75,000 in excess reserves. which the bank can use to make loans. We are going to assume the bank loans out the entire 575.000 $25,000 Loan checking acct $75,000$100,000 BANK TWO ASSETS LIABILITIES If a borrower needs to buy something, they go to get a loan. The get a loan from and make their purchase. The store they made their purchase at, collects their receipts at the end of the day and deposits the $75,000 into their account at Bank Two. Bank Two sets aside 25% or $18.750 as required reserves. The remaining $56.250 in their excess reserves can be lent out. (Carr lecture/slides) Reg reserves $18,750 Loan checking acet $56,250$75,000 Fill in the table above to show what happens when the Federal Reserva buys $100,000 in Securities when the reserve requirement is 25%. Use appropriate labels and explain each step to the right. Assume that there are no excess reserves. Write the formula for the money multiplier and use it to calculate the total effect that the above security purchase will have on the money supply. ent/d/1YHZ9FkrVm3hWPISSER-ONKYAJOXO_Omiq KOKU Abs/edit ved in DEVE IUA 60 -- 13 EE-EEX DE 2003 Problem 1 Explain each step here FEDERAL RESERVE BANK When the Federal Reserve buys a security, they ASSETS LIABILITIES gain an asset in the form of a security. Since the Security Reserves goal is to increase the supply, they pay for the security by setting up additional reserves in the $100,000 $100,000 amount of the security on the liability side of the balance sheet. These reserves were not there before. BANK ONE The seller has an account at Bank One. When the ASSETS LIABILITIES sale is made the amount of the security is added to the seller's account at Bank One. Bank One Req. reserves then sets aside required reserves in the amount a established by the reserve rate of 25%, which is $25,000 $25,000. This leaves $75,000 in excess reserves which the bank can use to make loans. We are Loan checking acet going to assume the bank loans out the entire $75.000 $75,000$100,000 If a borrower needs to buy something, they go to BANK TIVO get a loan. The get a loan from and make their purchase. The store they made their purchase at collects their receipts at the end of the day and ASSETS LIABILITIES deposits the $75,000 into their account at Bank Two. Bank Two sets aside 25% or $18.750 as Req reserves required reserves. The remaining $56.250 in their excess reserves can be tent out. (Carr $18,750 lecture slides) Loan checking acct 556,250$75,000 Fill in the table above to show what happens when the Federal Reserve buys $100,000 in securities when the reserve requirement is 25%. Use appropriate labels and explain each step to the night. Assume that there are no excess reserves Write the formula for the money multiplier and use it to calculate the total effect that the above security purchase will have on the money supply