30 Apr Question: Assume that the following balance sheet portrays the state of the banking system. The banks curre…
Assume that the following balance sheet portrays the state of the banking system. The banks currently have no excess reserves. Assets Liabilities and Net Worth (Billions of Dollars) Total reserves 40 Checkable deposits 160 Loans Securities Total 50 70 160 Total 160 What is the required reserve ratio? 25% 10% 40% 5%
Suppose that the Federal Reserve (the “Fed”) buys $10 million of bonds from a bond dealer, who immediately deposits the funds in her checking account. What is the initial impact of this transaction? The banking system’s holdings of securities fall by $10 million, and the banking system’s total reserves rise by $10 million. Checkable deposits rise by $10 million, and the banking system’s holdings of securities rise by $10 million. Checkable deposits rise by $10 million, and the banking system’s total reserves rise by $10 million. The banking system’s holdings of securities rise by $10 million, and the banking system’s total reserves fall by $10 million As a result of the Fed’s purchase of $10 million of securities, checkable deposits in the banking system can potentially by as much as
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