QUESTION #2

Populate the following T-accounts with the following data

$100 million in mortgage-backed securities (MBS)

$200 million demand deposits

$20 million in reserves held by banks

$100 million in Treasury securities held by banks

$50 million in Treasury securities held by the Fed

$5 million in overnight borrowing by banks from the Fed

Imagine that households buy $3million worth of cars from firms. Show how the balance sheet of households and firms change, as well as any changes on the balance sheets of the banking sector or anywhere else (you dont need to include the Treasury balance sheet here).

Households Banks Federal Reserve Firms

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