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Let's analyze the effect of the open market purchase of a $5,000 Treasury bill by the Federal Reserve on AD curve step by step. Assume
Let's analyze the effect of the open market purchase of a $5,000 Treasury bill by the Federal Reserve on AD curve step by step. Assume that the Federal Reserve bought the Treasury bill from a commercial bank. The left panel below shows the T-account of the Federal Reserve just before the open market purchase while the right panel below shows the T-account of the Federal Reserve just after the open market purchase. Fill in the blanks in the right panel. The left panel below shows the T-account of the entire commercial banking system just before the open market purchase of the Federal Reserve while the right panel below shows the T-account of the entire commercial banking system after the open market purchase subsequently leads to an infinite round of loan- deposit process. Assume that the required reserve ratio is 0.2, all excess reserves are fully loaned out and all new loans are fully deposited back into the entire commercial banking system. Fill in the blanks in the right panel
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