QUESTION #4

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

Suppose that the Fed wants to lower long-term interest rates and buys all the Treasury securities banks hold. Reflect those changes on the balance sheet (commitment to low long term interest rate environment, QE) and highlight in turquoise

Households Banks Federal Reserve Firms

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