# Open Market Operations as a Monetary ToolSuppose that the Federal Reserve **buys** $6 million worth of government securities from a customer of Wide Bank.In the following balance sheets, show the effect of this transaction. *(Hint: If either assets or liabilities do not exist, please select “Not Applicable” and “NA” in the drop-down menus, and type in “0” (zero) in the numeric entry fields.)*### Federal Reserve’s Balance Sheet- **Assets (Millions of Dollars)** - Gov’t Securities: + $6 million- **Liabilities (Millions of Dollars)** - Wide Bank Reserves: [Dropdown menu for selection]### Wide Bank's Balance Sheet- **Assets (Millions of Dollars)** - [Dropdown menu for selection]- **Liabilities (Millions of Dollars)** - [Dropdown menu for selection]### The Customer’s Balance Sheet- **Assets (Millions of Dollars)** - Gov’t Securities: [Dropdown menu for selection]- **Liabilities (Millions of Dollars)** - [Dropdown menu for selection]**Diagram Explanation:**The image illustrates the dynamic changes in balance sheets that occur when the Federal Reserve conducts open market operations by buying government securities. It presents three balance sheets—for the Federal Reserve, Wide Bank, and the customer—where specific entries will be adjusted based on the transaction. These entries are represented through dropdown menus and numeric fields to symbolize how assets and liabilities are reorganized as part of the monetary policy process. ## Open Market Operations as a Monetary Tool### Scenario:The Federal Reserve buys $6 million worth of government securities from a customer of Wide Bank.### Instruction:In the following balance sheets, show the effect of this transaction. *(Hint: If either assets or liabilities do not exist, please select “Not Applicable” and “NA” in the drop-down menus, and type in “0” (zero) in the numeric entry fields.)*---### Federal Reserve’s Balance Sheet- **Assets (Millions of Dollars)** - Gov’t Securities: Increase by $6 million- **Liabilities (Millions of Dollars)** - Wide Bank Reserves: Corresponding entry required---### Wide Bank's Balance Sheet- **Assets (Millions of Dollars)** - Entry required- **Liabilities (Millions of Dollars)** - Entry required---### The Customer’s Balance Sheet- **Assets (Millions of Dollars)** - Gov’t Securities: Decrease by $6 million- **Liabilities (Millions of Dollars)** - Entry required---### Diagram Explanation:This exercise involves a series of balance sheets illustrating how open market operations impact financial entities. The Federal Reserve's purchase increases government securities under its assets. Simultaneously, adjustments are needed within the balance sheets of Wide Bank and the Customer to reflect the transaction accurately. By entering “NA” where necessary, the exercise aims to demonstrate proper accounting entries for such economic activities.

When the Federal Reserve buys 6 million dollars government securities from a consumer then its…

1. Open market operations as a monetary tool Suppose that the Federal Reserve buys $6 million worth of government securities from a customer of Wide Bank. In the following balance sheets, show the effect of this transaction. (Hint: If either assets or liabilities do not exist, please select "Not Applicable" and "NA" in the drop-down menus, and type in "0" (zero) in the numeric entry fields.) Federal Reserve's Balance Sheet Assets (Millions of Dollars) Gov't Securities Assets (Millions of Dollars) Assets (Millions of Dollars) Gov't Securities 6 Wide Bank's Balance Sheet Liabilities (Millions of Dollars) Wide Bank Reserves ▼ Liabilities (Millions of Dollars) The Customer's Balance Sheet Liabilities (Millions of Dollars) PPI

1. Open market operations as a monetary tool Suppose that the Federal Reserve buys $6 million worth of government securities from a customer of Wide Bank. In the following balance sheets, show the effect of this transaction. (Hint: If either assets or liabilities do not exist, please select "Not Applicable" and "NA" in the drop-down menus, and type in "0" (zero) in the numeric entry fields.) Federal Reserve's Balance Sheet Assets (Millions of Dollars) Gov't Securities Assets (Millions of Dollars) Assets (Millions of Dollars) Gov't Securities 6 Wide Bank's Balance Sheet Liabilities (Millions of Dollars) Wide Bank Reserves ▼ Liabilities (Millions of Dollars) The Customer's Balance Sheet Liabilities (Millions of Dollars) PPI

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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question 1. this question has two parts; 1a and 1b. Assume that the following asset values (in millions of dollars) exist in Ironmania: Federal Reserve Notes in circulation = $700; Money market mutual funds (MMMFs) held by individuals = $400; Corporate bonds = $300; Iron ore deposits = $50; Currency in commercial banks = $100; Savings deposits, including money market deposit accounts (MMDAs) = $140; Checkable deposits = $1500; Small-denominated (less than $100,000) time deposits = $100; Coins in circulation = $40. (Recall, M1 equals Federal Reserve Notes in circulation plus checkable deposits plus Coins in circulation. M2 equals M1 plus Savings deposits, including Money market deposit accounts (MMDAs) plus Small-denominated (less than $100,000) time deposits plus Money Market Mutual Funds (MMMFs) held by individuals.) 1a. What is M1 in Ironmania? Show your computation. 1b. What is M2 in Ironmania? Show your computation.
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