Suppose that a central bank that is operating on the downward-sloping portion of the reserve demand curve decides to purchase $1,000 worth of foreign exchange reserves and then sterilize this foreign exchange market intervention. Show the impact on the central bank's balance sheet.

Central Bank Balance Sheet
U.S. Securities (Click to select) +$1,000 -$1,000	Bank Reserves (Click to select) +$1,000 -$1,000
Foreign currency reserves (Click to select) -$1,000 +$1,000	Bank Reserves (Click to select) +$1,000 -$1,000

What would the overall impact be on the monetary base?

The overall impact of the sterilized intervention is to make a compositional change on the (Click to select) liabilities asset side of the balance sheet while leaving the (Click to select) asset liabilities side unchanged. Therefore, the sterilized intervention (Click to select) increases decreases leaves unchanged the monetary base and the domestic interest rate does not change.

What would be the impact, if any, on the exchange rate? Assume that the intervention took place in a deep, well-functioning foreign exchange market.

The exchange rate will (Click to select) increase be unchanged decrease .