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Suppose the banking system starts with a combined balance sheet of: Assets Liabilities + Net Worth Bonds400Deposits 1000 Loans500Net Worth 0 Cash100 The required reserve

Suppose the banking system starts with a combined balance sheet of:

AssetsLiabilities + Net Worth

Bonds400Deposits 1000

Loans500Net Worth 0

Cash100

The required reserve ratio is 10%. Suppose the Fed buys $50 of the bank's bonds giving them cash.What is the next step in the process (e.g. what does the bank do with the extra cash?)?

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