Use commercial bank and Federal Reserve Bank balance sheets to demonstrate the immediate effect of each of the following transactions on commercial bank reserves. Assume that the initial reserve ratio is 20 percent. Fill in the new balance in the column in the balance sheet that corresponds with each of the following transactions. Consider each transaction separately, not cumulatively. a. Federal Reserve Banks purchase $2 billion worth of securities from banks b. Commercial banks borrow $1 billion from Federal Reserve Banks at the discount rate. c. The Fed reduces the reserve ratio from 20 percent to 19 percent. Instructions: Enter your answers as whole numbers in the gray-shaded cells of both tables below. Consolidated Balance Sheet: All Commercial Banks A B C Assets 42 $ 41 $ Reserves $40 40 58 $ Securities 60 $ 60 $ 60 102 $ 102 $ Loans 102 $ 102 Liabilities and net worth: Checkable deposits 200 $ 200 $ 200 $ 200 3 $ Loans from the Federal Reserve Banks 2 2 $ 2 Consolidated Balance Sheet: 12 Federal Reserve Banks Assets: 285$ 283 $ Securities $283 $ 283 2 S Loans to commercial banks 21 2 $ Liabilities and net worth: Reserves of commercial banks 40 42 41 40 5 $ 5 $ Treasury deposits $ 5 225 S 225 $ Federal Reserve Notes 225 225 15 S 15 $ Other liabilities and net worth 15 $ 15 d. Commercial banks increase their reserves after the Fed increases the interest rate it pays on reserves. Which of the columns above could represent this action?

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter11: The Monetary System

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Commercial banks increase their reserves after the Fed increases the interest rate it pays on reserves. Which of the columns above could represent this action?

Use commercial bank and Federal Reserve Bank balance sheets to demonstrate the immediate effect of each of the following
transactions on commercial bank reserves. Assume that the initial reserve ratio is 20 percent. Fill in the new balance in the column in
the balance sheet that corresponds with each of the following transactions. Consider each transaction separately, not cumulatively.
a. Federal Reserve Banks purchase $2 billion worth of securities from banks
b. Commercial banks borrow $1 billion from Federal Reserve Banks at the discount rate.
c. The Fed reduces the reserve ratio from 20 percent to 19 percent.
Instructions: Enter your answers as whole numbers in the gray-shaded cells of both tables below.
Consolidated Balance Sheet: All Commercial Banks
A
B
C
Assets
42 $
41 $
Reserves
$40
40
58 $
Securities
60
$
60
$
60
102 $
102 $
Loans
102
$
102
Liabilities and net worth:
Checkable deposits
200 $
200 $
200
$
200
3 $
Loans from the Federal Reserve Banks
2
2
$
2

Consolidated Balance Sheet: 12 Federal Reserve Banks
Assets:
285$
283 $
Securities
$283
$
283
2 S
Loans to commercial banks
21
2
$
Liabilities and net worth:
Reserves of commercial banks
40
42
41
40
5 $
5 $
Treasury deposits
$
5
225 S
225 $
Federal Reserve Notes
225
225
15 S
15 $
Other liabilities and net worth
15
$
15
d. Commercial banks increase their reserves after the Fed increases the interest rate it pays on reserves. Which of the columns above
could represent this action?

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