2. A bank (banking system) has reserves of $700,000; advances of $1300,000 and deposits of $2,000,000 and is fully loaned-up. The Federal Reserve now buys $1m worth of bonds through its open market operations. What will the change in balances be in the balance sheet after two rounds of lending? What will the final (aggregate) balances be after the full credit creation process?

2. A bank (banking system) has reserves of $700,000; advances of $1300,000 and deposits of $2,000,000 and is fully loaned-up. The Federal Reserve now buys $1m worth of bonds through its open market operations. What will the change in balances be in the balance sheet after two rounds of lending? What will the final (aggregate) balances be after the full credit creation process?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

2. A bank (banking system) has reserves of $700,000; advances of $1300,000 and deposits
of $2,000,000 and is fully loaned-up.
The Federal Reserve now buys $1m worth of bonds through its open market operations.
What will the change in balances be in the balance sheet after two rounds of lending?
What will the final (aggregate) balances be after the full credit creation process?

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