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 cis 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. 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. Instructions: Enter your answers as whole numbers in the gray-shaded cells in both tables below. Consolidated Balance Sheet: All Commercial Banks Assets: Reserves Securities Loans Liabilities and net worth: Checkable deposits Loans from the Federal Reserve Banks 150 $ 150 $ Consolidated Balance Sheet: 12 Federal Reserve Banks A B Assets: Securities 60 $ 55 Loans to commercial banks S Liabilities and net worth: Reserves of commercial banks $ 345 353 Treasury deposits Federal Reserve Notes 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 click to select) 2. Reserves Click to select from $34 to 5 billion 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 (Click to select) 2. Reserves (Click to select from $34 to $ billion 3. Money-creating potential (Click to select) by $ billion Transaction : 1. The money supply click to select) by $ billion. 2. Reserves Click to select from $34 to $ 2 billion 3. Money-creating potential (Click to select) by $ bill Transactions 1. The money supply click to select) 2. Reserves (Click to select from $34 to $ 1 billion, 3. Money-creating potential (Click to select) by $ bill
