Table 14.5 p. 193

1. Total reserves in this table equal (0, 70, 210 or 350). Required reserves in this table equal (0, 70, 210 or 350). Excess reserves in this table equal (0, 70, 210 or 350). Securities in this table equal (0, 70, 210 or 350). Loans in this table equal (0, 70, 210 or 350). Transactions accounts in this table equal (0, 70, 210 or 350).

Suppose the Fed wants to expand the money supply using open-market operations and it is faced with the balance sheet of the banking system as shown in Table 14.3. Suppose further that: The banking system initialiy has no excess reserves. The reserve requirement is 0.20, banks make loans in the full amount of any excess reserves that they acquire. A it loans flow back into the banking system as transactions deposits. Table 14.3 Balance sheet of banking system (millions of doiiars) Total reserves S60 Transactions accounts t300 Required, S60 S0 Securities Loans 160 Total Total $300 Suppose the Open Market Committee buys $10 million of securities from the commercial banking system. In Table 14.4 show the changes and new totals for the various accounts 1. the the commercial banks after this transaction but before any new loans are made or called Table 14.4 Balance sheet of commercial banking system after FOMC buys $10 million of securities (millions of dollars) Total reserves Transactions accounts Kequtred, Securities Loans Total Total 2 Suppose the banking amount it can on the hascis of expands its loans and transactions accounts by the maximum in excess reserves. 192 The total lending capacity for ithe banking system will increase by Assume banks fully utilize their new lending capacity. In Table 14.5 complete the balance sheet for the banking system showing the new totals for all of the accounts after loans have been made. (Remember: The reserve ratio is 0.20.) 3 4 Table 14.5 Balance sheet of banking system after expansion of loans and deposits (millions of dollars) Total reserves Transactions accounts S. Securities Loans Total Total