Question Suppose that the T-account for First California Bank is as follows.

01 Jun Question Suppose that the T-account for First California Bank is as follows.

Posted at 06:40h in Essay Writing Services by Past Papers

Question

Suppose that the T-account for First California Bank is as follows.
Assets Liabilities
Reserves $50,000 Deposits $500,000
Securities 50,000
Loans 400,000

The Bank currently holds the reserves as required by the Fed, and all other banks in the nation do just the same, i.e., hold the exact amount of reserves as required by the Fed.
(1) Suppose that the Fed sells $30,000 securities to First California Bank, as part of the Fed’s policy action to reverse “quantitative easing.” Draw the new T-account for First California Bank right after the sale by the Fed.
(2) Suppose that all banks, including First California Bank, continue to holds the exact amount of required reserves. As a result of the Fed’s sale of $30,000 securities to First California Bank, how much of money supply will change? Is the change in money supply an increase or a decrease?

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