The Fed wants to expand the money supply and throughout this worksheet all three methods will be used; the reserve requirement, open market operations and the discount rate. Make note of the following assumptions: The banks in the system initially have $240 million in transaction-deposits The banking system has no excess reserves The reserve requirement is 25%. The banks make loans in the full amount of any excess reserves that they acquire No cash is drained out of the system Below is the combined balances of the banks in the system shown in millions of dollars What are the required reserves based on the information above? 60,000,000 Does the balance sheet balance? yes Fill in missing numbers. Show me calculations. ASSETS BANK BALANCE SHEET LIABILITIES 75 Transaction Accounts Total Reserves $300 Securities Loans TOTAL 80 145 300 TOTAL 300 Reserve Requirement Use the numbers above to calculate the changes that will occur if the Fed changes the reserve requirement to 20%. Calculate the NEW money creation: Fill in missing numbers. Show me calculations, ASSETS Total Reserves BANK BALANCE SHEET LIABILITIES 60 Transaction Accounts 300 Securities Loans TOTAL 80 160 300 TOTAL 300 Open Market Operations Use the previous Bank Balance Sheet to calculate what happens when the Open Market Committee buys $20 million of securities from the commercial banking system. Remember that the Reserve Requirement is 20%. Calculate the NEW money creation: Fill in missing numbers. Show me calculations. ASSETS Total Reserves BANK BALANCE SHEET LIABILITIES 24 Transaction Accounts 300 Securities Loans TOTAL 60 216 300 TOTAL The Discount Rate Use the previous Bank Balance Sheet to calculate what happens when the Fed lowers the discount rate by 1%. When the discount rate changes the banks respond to each percentage point drop by borrowing $4 million from the Fed (this is one of the times that it is acceptable to borrow from the FED). Calculate the NEW money creation: Fill in missing numbers. Show me calculations. ASSETS Total Reserves BANK BALANCE SHEET LIABILITIES 28 Transaction Accounts 300 Securities Loans | TOTAL 56 216 300 TOTAL 300 The Fed wants to expand the money supply and throughout this worksheet all three methods will be used; the reserve requirement, open market operations and the discount rate. Make note of the following assumptions: The banks in the system initially have $240 million in transaction-deposits The banking system has no excess reserves The reserve requirement is 25%. The banks make loans in the full amount of any excess reserves that they acquire No cash is drained out of the system Below is the combined balances of the banks in the system shown in millions of dollars What are the required reserves based on the information above? 60,000,000 Does the balance sheet balance? yes Fill in missing numbers. Show me calculations. ASSETS BANK BALANCE SHEET LIABILITIES 75 Transaction Accounts Total Reserves $300 Securities Loans TOTAL 80 145 300 TOTAL 300 Reserve Requirement Use the numbers above to calculate the changes that will occur if the Fed changes the reserve requirement to 20%. Calculate the NEW money creation: Fill in missing numbers. Show me calculations, ASSETS Total Reserves BANK BALANCE SHEET LIABILITIES 60 Transaction Accounts 300 Securities Loans TOTAL 80 160 300 TOTAL 300 Open Market Operations Use the previous Bank Balance Sheet to calculate what happens when the Open Market Committee buys $20 million of securities from the commercial banking system. Remember that the Reserve Requirement is 20%. Calculate the NEW money creation: Fill in missing numbers. Show me calculations. ASSETS Total Reserves BANK BALANCE SHEET LIABILITIES 24 Transaction Accounts 300 Securities Loans TOTAL 60 216 300 TOTAL The Discount Rate Use the previous Bank Balance Sheet to calculate what happens when the Fed lowers the discount rate by 1%. When the discount rate changes the banks respond to each percentage point drop by borrowing $4 million from the Fed (this is one of the times that it is acceptable to borrow from the FED). Calculate the NEW money creation: Fill in missing numbers. Show me calculations. ASSETS Total Reserves BANK BALANCE SHEET LIABILITIES 28 Transaction Accounts 300 Securities Loans | TOTAL 56 216 300 TOTAL 300