In the tables that follow you will find consolidated balance sheets for the commercial banking system and the 12 Federal Reserve Banks. Use columns 1 through 3 to indicate how the balance sheets would read after each of transactions a to c is completed. Do not cumulate your answers; that is, analyze each transaction separately, starting in each case from the numbers provided. All accounts are in billions of dollars. Instructions: Enter your answers as a whole number. Assets: Reserves Securities Loans Liabilities and net worth: Checkable deposits Consolidated Balance Sheet: All Commercial Banks 1 2 3 Loans from the Federal Reserve Banks Assets: $ 34 58 62 58 $ 58 62 $ 62 $ 62 $ 150 $ 150 4 $ $ Consolidated Balance Sheet: 12 Federal Reserve Banks 1 2 3 Securities $ 60 Loans to commercial banks 4 60 4 $ 4 Liabilities and net worth: Reserves of commercial banks Treasury deposits $ 34 3 3 $ 3 $ 3 Federal Reserve Notes 27 27 $ 27 $ 27 a. A decline in the discount rate prompts commercial banks to borrow an additional $1 billion from the Federal Reserve Banks. Show the new balance sheet numbers in column 1 of each table. b. The Federal Reserve Banks sell $3 billion in securities to members of the public, who pay for the bonds with checks. Show the new balance sheet numbers in column 2 of each table. c. The Federal Reserve Banks buy $2 billion of securities from commercial banks. Show the new balance sheet numbers in column 3 of each table. d. Now review each of the above three transactions, asking yourself these three questions: (1) What change, if any, took place in the money supply as a direct and immediate result of each transaction? (2) What increase or decrease in the commercial banks' reserves took place in each transaction? (3) Assuming a reserve ratio of 20 percent, what change in the money-creating potential of the commercial banking system occurred as a result of each transaction? d. Now review each of the above three transactions, asking yourself these three questions: (1) What change, if any, took place in the money supply as a direct and immediate result of each transaction? (2) What increase or decrease in the commercial banks' reserves took place in each transaction? (3) Assuming a reserve ratio of 20 percent, what change in the money-creating potential of the commercial banking system occurred as a result of each transaction? Transaction a: (1) The money supply did not change (2) Reserves increased from $34 billion to $ billion. (3) The money-creating potential increased by $ billion. Transaction b: (1) The money supply decreased by $ billion. (2) Reserves decreased from $34 billion to $ billion. (3) The money-creating potential decreased by billion. Transaction c: (1) The money supply did not change (2) Reserves increased from $34 billion to $ billion. (3) The money-creating potential increased by $ billion.